Rural

COOPERATIVESUSDAUSDA // RuralRural DevelopmentDevelopment July/August 2000

Spiral of success: co-ops spin off benefits to rural communities COMMENTARY

Putting our eggs in more than one basket

Rural America is far less dependent the rural population. upon production agriculture today than Few in agriculture would deny that it was when I was a girl growing up on a this trend of rural economic diversifica- farm in Indiana. In those days, when you tion is a healthy one. It can even help graduated from high school, you had hold families together, as in the case two basic life choices to make: A) take where one child stays home to run the the steps that would eventually enable family farm while her brother buys a you to assume control of your family’s nearby house and takes a job at an farm, or B) kiss the farm goodbye and Internet service provider that located in move to town to find your future. the county seat. Even if the trend Today, for many rural people choices toward fewer, larger farms stops tomor- are increasing. That’s because every row (and few believe that it will), we year, an increasing number of light need this type of economic diversifica- industry, high-tech and service industry tion to prevent many rural areas from firms are relocating all or some of their becoming de-populated. Cooperative Service of USDA Rural operations to rural communities. But does this mean that the rural Development. It provides insight into These businesses have found that economy is no longer heavily dependent how cooperatives benefit rural communi- rural America is not only a great place on the farm economy? Absolutely not! ties. These studies include a look at how to live, but a great place to do business. Without a strong, thriving farm sector, South Dakota soybean growers — tired A ready supply of highly motivated the overall rural economy will suffer of shipping their raw crop out of town workers with a strong work ethic is one severely in most regions. The fate of and then buying back the soymeal that of the major attractions. These firms farmers and farmworkers is inexorably was processed from it in other states — also have learned that many suburban linked with the general fiscal health of opened their own soybean processing and urban workers are anxious to escape rural America. plant. You’ll also learn why Missouri corn the “rat race” of city life. Value-added processing cooperatives growers decided to go into the ethanol Improvements in the rural infrastruc- are another vital link in this chain of business and how changes in pork pro- ture — telecommunications, water and economic diversification. They repre- duction methods are helping an Iowa sewer, transportation, etc.— are helping sent a way to achieve diversification and farm supply co-op gain new economic to fuel this movement. The programs of vertical integration within the farming strength. In each of these and the other USDA Rural Development are playing a industry. These cooperatives have the cases cited, the researchers found that the major role in accelerating the rate of power to transform a community from rural communities have benefited greatly business diversification in rural areas one that is solely a producer of raw from these new business ventures. and in helping electric cooperatives and commodities into a producer of finished, So let’s continue placing our econom- others to finance improvements in rural or partially finished, goods. These coop- ic eggs in more than one basket, without infrastructure. A little more than 65 eratives not only generate higher ever forgetting that agriculture is still the years ago, President Franklin Delano income for farmers, they create jobs and foundation of the rural economy — and Roosevelt set the stage for the transfor- boost the local tax base. They also help will be for a long, long time to come. mation of rural life when he created attract “spinoff” businesses, new hous- USDA’s Rural Electrification Admini- ing, schools and community facilities to stration. A series of articles in this issue rural communities. (beginning on page 6) provide an I hope you’ll read the article in this overview that shows how important this issue (page 16) based on five case studies, act was to the nation, and how vital funded under a cooperative research Jill Long Thompson, these programs remain for the future of agreement from the Rural Business- Under Secretary, USDA Rural Development

2 July/August 2000 / Rural Cooperatives Rural July/AugustCOOPERATIVES 2000 Volume 67 Number 4

RURAL COOPERATIVES (1088-8845) is published bimonthly by Rural Business–Cooperative Service, U.S. Department of Agriculture, 1400 Independence FEATURES Ave. SW, Stop 0705, Washington, DC. 20250-0705. The Secretary of Agriculture has determined that publication of this periodical is necessary in the transaction of public business required by law of 6 When the lights came on the Department. Periodicals postage paid at USDA program brought electricity and a better way of life to Washington, DC. and additional mailing offices. Copies may be obtained from the Superintendent of rural America Documents, Government Printing Office, Washington, Dan Campbell DC, 20402, at $3.50 domestic, $4.38 foreign; or by annual subscription at $15.00 domestic, $18.75 for- Pamela J. Karg eign. Postmaster: send address change to: Rural Cooperatives, USDA/RBS, Stop 3255, Wash., DC 20250-3255.

Mention in RURAL COOPERATIVES of company and brand names does not signify endorsement over other companies’ products and services. 16 Generating rural progress

Unless otherwise stated, contents of this publica- Study finds that new-generation and traditional co-ops have tion are not copyrighted and may be reprinted major beneficial impacts on rural communities freely. For noncopyrighted articles, mention of source will be appreciated but is not required. Patrick Duffey

The United States Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons 25 How well are dairy cooperatives performing? with disabilities who require alternative means for Carolyn Liebrand communication of program information (braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, D.C. 20250-9410, or call (202) 720-5964 (voice or TDD). USDA is an equal opportunity DEPARTMENTS provider and employer.

Dan Glickman, Secretary of Agriculture 2 COMMENTARY

Jill Long Thompson, Under Secretary, 15 IN THE SPOTLIGHT Rural Development 22 MANAGEMENT TIP Dayton J. Watkins, Administrator, 28 NEWSLINE SPOTLIGHT Rural Business–Cooperative Service 23 N Gladys Rodriguez, Director of Public Affairs

Dan Campbell, Managing Editor

Vision 2000/Kota, Design

Have a cooperative-related question? Call (202) 720-6483, or On the Cover: Fax (202) 720-4641, Information Director, Pasta spirals down a loading chute for loading and shipping from Carrington, This publication was printed with vegetable oil-based ink. S.D., to food ingredient customers across the nation. Cooperatives such as Dakota Growers Pasta Co. spin off numerous economic and social benefits to rural communities, according to a new USDA-sponsored study. Story on page United States Department of Agriculture 16. Photo courtesy Dakota Growers Pasta Co.

Rural Cooperatives / July/August 2000 3 Tri Valley Growers files Chapter 11 bankruptcy

Dan Campbell, many low-income work- emerged successfully Managing Editor ers their jobs and set off a after a Chapter 11 fil- chain reaction that will ing, including Texaco, ri Valley Growers, for hurt farm-related busi- TWA, America West, 68 years one of the nesses throughout the Continental Airlines, nation’s premiere fruit state,” said Robert Toys ‘R’ Us and 7-11 T and vegetable coopera- Hansen, manager of the stores. tives, filed for Chapter Suisan Valley Fruit However, according 11 Bankruptcy on July 10 after accu- Growers cooperative, a to a report in the July mulating more than $200 million in farm supply co-op with 12 Modesto Bee newspa- debts during the past three years. Even many members who ship per, Shaw told growers though the co-op’s financial status has their fruit to Tri Valley. at a private meeting that been precarious for several years, the The impact of so much there is no hope of sav- bankruptcy announcement sent shock- fruit and tomatoes enter- ing the co-op, which is waves through California’s agriculture ing the market “without a instead gearing its industry and could have severe conse- home” could cause com- efforts to process as quences for the co-op’s 500 grower- modity prices to drop to much of this year’s crop members, 11,000 seasonal and year- “fire sale” levels, he as possible and then around employees, businesses that warned. seek a buyer for its trade with the co-op, and farm-depen- The state’s cling peach operations. Indeed, the dent business throughout the state. growers association credit plan being Tri Valley announced that it plans to responded with a plan to pay members worked out with the bankruptcy court idle two of its tomato-processing to pull out some orchards. Industry reportedly stipulates that the company plants. That move would leave some groups also launched an effort to urge must be sold by this Feb. 1. 500,000 acres of processing tomatoes USDA to ease the situation by buying Tri Valley cans about half of the without a home. With the canned more fruit and tomatoes. At press dead- nation’s peaches and apricots, and a sig- tomato industry in an over-supply situ- line for this issue, USDA had just nificant share of the canned tomatoes, ation, much of that crop may have to formed a special task force under fruit cocktail, pears and other fruit and be disked under. Deputy Secretary Richard Rominger to vegetable products. There is no way Tri Valley will also process a reduced study the situation. other processors can absorb so much amount of its members’ fruit crops this Jeffrey P. Shaw, Tri Valley president tonnage this season, so an immediate summer. It will accept only 70 percent and CEO, said the Chapter 11 filing cessation of Tri Valley operations would of its members’ pear crop, 85 percent “is our best path for the continuation be “a catastrophe for California agricul- of their peaches, 33 percent of their of our company’s operations and ser- ture” and could even impact crop prices tomatoes and 85 percent of their vices.” Unlike a Chapter 7 bankrupt- in other states, said Randall Torgerson, grapes. Growers were also told that cy, which provides for the liquidation deputy administrator for USDA’s Rural they would only receive 70 percent of of a failing business, Chapter 11 is Business-Cooperative Service. Even the the payment they had expected for meant to provide protection from reduced operations being contemplated their 1999 crops, and would receive creditors to allow time for a business at press time will exact a heavy toll on only 60 to 70 percent of the market to reorganize its operations, including the industry, he said. price for the reduced percentage of plans for paying creditors as much as As recently as May, press reports their 2000 crop processed by the co-op. possible. Shaw’s letter to member- from California indicated that the “This will definitely put some grow- growers cited examples of other well- struggling co-op was finally beginning ers out of business. It’s going to cost known corporations that have to see some signs of improved opera-

4 July/August 2000 / Rural Cooperatives tions. In late June, the co-op was still USDA help in easing the crisis. They The Tri Valley situation has also denying rumors of impending bank- suggested that USDA purchase left “an enormous surplus of toma- ruptcy. But then the co-op’s main sup- 120,000 tons of raw pears and 1 million toes,” according to John C. Welty, plier of canning material — Crown, cases of canned pears, and that it offer executive vice president of the Cali- Cork and Seal — declined to continue non-recourse loans to cover the $30 fornia Tomato Growers Association doing business with the co-op after it million shortfall their growers suffered (CTGA), a member-owned bargain- could not obtain a secured debt posi- on the 1999 crop. They also urged ing association. CTGA has requested tion equal to the co-op’s banks. That USDA to help secure a loan guarantee that USDA agree to make an emer- action, in turn, caused the co-op’s to cover the $55 million shortfall in gency purchase of $40 million to $50 banking consortium to reduce a loan credit TVG had been seeking. million worth of surplus canned package for the 2000 canning season On July 21, Vice President Al Gore tomatoes under its Section 32 pro- from $325 million to $270 million. The announced that USDA would pur- gram. A purchase of this size would result “was like offering seven bags of chase 1.4 million cases (64 million “effectively remove surplus tomatoes, feed to a hungry horse that requires 10 pounds) of pears to help struggling provide a degree of relief to Tri Valley bags of feed to work efficiently,” said farmers. Purchases are made on a Growers and improve overall condi- Terry Barton, president of the Califor- low-bid process (call 202-720-4517 tions in the industry,” said Welty. Cal- nia Pear Growers association. for details). The canned pears will be ifornia supplies 95 percent of the These two actions came as a shock donated to domestic food assistance nation’s processed tomatoes and 40 to co-op leaders, who, until that point, Programs, including the National percent of the world’s supply. had been pleased with the progress School Lunch program, which pro- Shaw, who in March 1999 succeeded being made to put their house back in vides meals to 27 million school chil- Joe Famalette and an interim manager, order. “We had reduced our short-term dren each day. said the co-op’s attempts to return to debt by $60 million, cut inventory by “Many growers are deciding profitability have been stymied in large $70 million and significantly improved whether it makes sense to pick this part by unfavorable, long-term con- our levels of service,” Shaw said. But, year’s crop given uncertainties in the tracts, an industry-wide oversupply of he noted, “Clearly, the problems asso- marketplace,” Gore said. “This pur- tomatoes, and processing plants run- ciated with the canned tomato market chase will reassure growers and make ning under capacity. Despite these have hampered our progress.” sure the pears are used to provide challenges, he said the co-op had been Barton, Hansen and other represen- nutritious meals for schoolchildren and making major progress in key areas this tatives of the pear industry traveled to needy families rather than simply going year prior to the cutback on its operat- Washington, D.C., in mid-July to seek to waste.” ing loan. ■

History of NFO charts farm protest movement

Don Muhm, retired farm reporter for marketing initiatives in the post-Staley era are also discussed, the Des Moines Register, has written a along with financial challenges the organization has constant- book that chronicles the history of the ly endured. National Farmers Organization from its USDA Rural Development supported writing of this man- inception in the mid-1950s through the uscript through a cooperative agreement with the Depart- close of the 20th century. The book, The ment of Economics at Iowa State University. NFO: A Farm Belt Rebel, The History of “Students of group action in agriculture will welcome this the National Farmers Organization,” is addition to their library. It provides insights into a period in published by Lone Oak Press, Red Wing, American agriculture marked by swift structural change in the Minn. makeup of farm operations and the marketing institutions serv- Muhm’s book covers events surrounding the organization ing them,” says Randall Torgerson, deputy administrator of throughout his career covering the farm beat in Iowa and nearby USDA’s Rural Business-Cooperative Service. Midwestern states. This includes the NFO’s origins as a farm Copies are available through Lone Oak Press, 1412 Bush protest movement, and later maturation into a combination farm Street, Red Wing, MN 55066. A limited number of copies organization/cooperative led by Missouri farmer Oren Lee Staley. are also available from the USDA Rural Business-Cooperative It advocated massive public demonstrations to drive the plight of Service at $25 hardcover and $17 softcover. Checks, payable farmers home to the public. to “U.S. Department of Agriculture,” and accompanied by Muhm’s pictures of hog shootings and milk dumping are your name and address, should be sent to: USDA Rural included. Others show mass meetings and organizational Development, Attn.: Dan Campbell, Stop 0705, 1400 Inde- leaders who have served the organization. Later cooperative pendence Ave. SW., Washington, D.C., 20250-0705. ■

Rural Cooperatives / July/August 2000 5 When the lights came on

USDA program brought electricity and a better way of life to rural America

Dan Campbell, Managing Editor

ixty-five years ago, Ameri- ca was is in the grips of S the worst economic depression of the 20th century. In rural areas, the situation was particularly bleak — especially for the 6 million Americans who earned their living as farmers. At a time when 90 percent of the urban population had electricity in their homes, only one in 10 rural Americans had electric service. The power companies felt the low pop- ulation densities of the nation’s rural heartland simply would not yield the type of profits they needed to justify extending service to 95 percent of the nation’s land mass. President Franklin D. Roosevelt realized that living standards in rural USDA used posters such as this to spread the word about the benefits of electricity for areas would continue to lag behind farmers and other rural people. USDA photo urban areas without electric service, and that it would take bold, decisive ed faces of rural people crushed in their unending, punishing tasks performed action to help rural Americans get it. prime by the rigors of rural life, Agri- by hundreds of thousands of women, So on May 11, 1935, he signed an exec- culture Secretary Dan Glickman said growing old prematurely; dying before utive order creating the Rural Electrifi- during an event in Washington, D.C., their time....” cation Administration (REA) within marking the 65th anniversary of the President Roosevelt found these the U.S. Department of Agriculture. creation of the REA. conditions unacceptable, Glickman This federal agency helped rural Amer- Glickman recalled the daily strug- said. “If private utilities wouldn’t find a icans all across the nation form user- gles of rural people in those pre-elec- way to wire rural America, he would owned cooperatives and provided them tricity days by quoting Senator George see to it that the government loaned with loans needed to build a rural elec- Norris, one of the co-sponsors of the the money necessary to make it hap- tric infrastructure. These co-ops, in Rural Electrification Act: “I had seen pen.” Within just a few years of that partnership with USDA/REA, brought firsthand the grim drudgery and order, 300,000 rural Americans had electric service to even the most grind...I had seen the tallow candle in electrical power, an increase of 25 per- remote corners of the nation. my own home, followed by the coal-oil cent. The rate of “wired” farms contin- Electricity was the fuel for the eco- lamp. I knew what it was like to take ued to climb with each passing year. nomic engine that revolutionized rural care of farm chores by the flickering, Electricity eased many of the bur- life. In pre-electricity days, farm chores undependable light of the lantern in dens for rural life. Work could be done were often done by the dim light of the mud and cold rains of the fall, and much more efficiently and safely with kerosene or coal-oil lamps. Those the snow and icy winds of winter. I electric light. Electricity meant that flickering lights all too often illuminat- recall the...scenes of harvest and the refrigeration systems — which helped

6 July/August 2000 / Rural Cooperatives keep food supplies safe and created new got light and we got lights! Oh the and raised on a farm in southern Illinois, opportunities for the production and lights, the lights.” where her father cleared 1,000 acres of shipment of perishable commodities — Campbell said, “REA is govern- Illinois River bottom land, Mamer said became far more widespread. Electrici- ment at its best: doing things critical she knew well the hard labor of rural life. ty helped mechanize many tasks that for the common welfare that are So when the chance came to leave home had previously been done by hand. beyond the ability of individuals to to attend the University of Illinois at Electricity was not do for themselves.” Urbana, she took it. simply an added con- Glenn English, CEO of National The REA road show used two big venience for rural Rural Electrification Cooperative Asso- circus tents, one for a general meeting Americans. It helped ciation (NRECA), described the REA as and the other to demonstrate electrical make them the world’s “a partnership between government and appliances and farm equipment, most productive pro- ordinary people who have used coopera- Mamer recalled. One of her main ducers of food and tives as a business device to own the duties was to speak to farm wives to fiber and dramatically utilities that mean so much to them.” help them “convince their husbands to improved their living REA, English standards. continued, Louisan Mamer receives a Lifetime Achievement Award from USDA enabled rural co- Rural Utilities Service Administrator Chris McLean. Inset photo: Breaking the bonds ops to build “the Mamer, circa 1935, making a presentation about the use of electrici- of poverty finest electrical ty in the home and on the farm during one of the “electric circus” shows. USDA photos “The day the lights infrastructure in finally came on at our the nation, bar- farm, I remember my none...REA is a mother cried,” former great program that Agriculture Secretary performed great Bob Bergland recalled deeds,” he said, during the anniversary noting that it built celebration. They were half of the nation’s tears of joy, he said, electric infrastruc- because with the arrival ture. He also of electricity on his par- praised REA/Rural ents’ subsistence farm Utilities Service near the border of (RUS) as a highly Minnesota and Canada, efficient program. “she finally saw a chance for our family to break the bonds of poverty. Electric circus “We lived in poverty, as did most of To help the other 6 million farms then operat- educate rur- ing in the United States,” he said. “You al people in struggled to stay alive.” the 1930s Bergland recalled the first three elec- about how tric appliances his family bought. The they could first purchase was electric lights for the use electricity house, followed by a toaster and then a in their homes pay to join a cooperative.” “98-cent hair curler my mother bought and on their farms, Small radios and electric irons were at J.C. Penney and kept all her life.” REA sponsored a traveling road show, among the first appliances sold. In the Art Campbell, Deputy Under Sec- which became known as the “electric North, washing machines were in big retary for Policy and Planning at circus.” Louisan Mamer was one of demand, while refrigeration was more USDA Rural Development, said he REA’s first employees, hired in 1935 of a priority in the South. too has vivid memories of the day his to help stage those road shows. She Mamer also trained other instruc- parents’ farm was wired for electricity. was presented a Lifetime Achievement tors so that they could conduct work- “I remember singing with robust glee Award during the anniversary ceremo- shops, and she developed training in celebration as our little strip of ny and shared some memories of those materials, remaining with REA until houses along a dirt road was connect- early days. her retirement in 1981. ed to electricity. We sang out with joy Mamer recalled being intrigued by “Education, inspiration, involve- and no small amount of amazement: an REA advertisement seeking people ment and recognition” are the keys to Oh the lights, the lights, Lottie Mae with “a pioneering spirit.” Born in 1910 success in life and business, Mamer

Rural Cooperatives / July/August 2000 7 said. “Let people know what they do is more than $1 billion in rural electric the years ahead. He said the only pow- appreciated.”. infrastructure development each year. er systems in the nation built to meet Some say USDA’s rural electric pro- federal standards are those financed by REA legacy all around gram has served its purpose and is no the Rural Utilities Service. RUS could As America celebrates REA’s 65th longer needed. But electric systems are help bring the entire electric infra- anniversary, the wisdom of Roosevelt’s aging and must be upgraded to meet structure of the nation up to these high action in 1935 is obvious: 95 percent of the increasing power demands of rural standards, he said. all rural Americans now have electric customers. The program will be “just RUS Administrator Chris McLean service and nearly half of all rural elec- as important to rural America in the said USDA’s rural utility programs are tric lines in the nation were built under 21st century as it was President Roosevelt’s creation of the USDA Rural Electrification this program. Through REA, $56 bil- in the 20th century,” Administration in 1935 brought electric light and power to rural lion has been invested in rural electric Bergland said. people, and eased many burdens of rural life. USDA photo service for rural Americans. The pro- English predicted gram — now administered under the that reliability will Rural Utilities Service of USDA Rural become a key issue Development — continues to invest for electric service in

Iowa RECs reach 15-year milestone for rural development

Pamela J. Karg Field Editor With 85 to 90 percent of its sales to farmers and other rural Dennis Murdock, CIPCO chief executive officer. “There was lit- residents, Central Iowa Power Cooperative leaders knew tle focus at the time on job creation in rural areas served by they needed to do something to promote electrical use in the electric cooperatives, which were also the parts of Iowa where countryside. Otherwise, the investments by local farmers and the farm crisis had taken a heavy toll on farm men and women rural residents through their electric cooperatives for gener- who were searching for off-farm income opportunities.” ating stations and transmission lines were inevitably going to During the past 15 years, IADG and Iowa’s rural electric be borne by fewer and fewer people. cooperatives (REC) have been instrumental in creating busi- “We had done a few things to try to stimulate electrical ness and community development opportunities across Iowa. sales, but it became apparent it was a bigger job than we had IADG is the marketing and economic development agency for the resources for,” said Mel Nicholas, who was then working nearly 70 of Iowa’s rural electric cooperatives and select with Central Iowa Power Cooperative (CIPCO), a Cedar Rapids- municipal electric systems across the state. IADG has assist- based generation and transmission cooperative. CIPCO is the ed with over 850 successful business expansions and new wholesale power supplier for 13 rural electric distribution locations. This growth represents capital investment of more cooperatives and one municipal cooperative. Together, CIPCO than $2.5 billion and more than 26,000 new jobs. and the CIPCO Systems supply the electric service needs of USDA has credited IADG with initiating 57 grants and 250,000 Iowans who live in a service territory that stretches 300 loans totaling more than $16 million for projects across the miles diagonally across northeastern Iowa to its southwestern state that led to 2,900 new jobs. All IADG services are offered corner. CIPCO has participated in the loan program of USDA’s at no charge to new and expanding businesses, compliments Rural Utilities Service since 1946. of Iowa’s rural electric cooperatives. In 1980, CIPCO sold less electricity than it had in the previ- IADG’s sponsors are the generation and transmission ous year. That’s when Nicholas hatched an idea to have all of cooperatives serving Iowa, which includes CIPCO, Cedar Iowa’s power-generation cooperatives pool their resources Rapids; Corn Belt Power Cooperative, Humboldt; Northwest to fund what would eventually become the Iowa Area Devel- Iowa Power Cooperative, LeMars; and Northeast Missouri opment Group (IADG). By 1985, Iowa’s farm economy had Electric Power Cooperative, Palmyra. The Iowa Farm Bureau been badly battered and rural electric sales were flat, at Federation is also an IADG sponsor. The two have been best. IADG’s formation that year could not have come at a working together since 1997 to advance value-added agricul- better time. tural opportunities in Iowa. “Our goal was jobs and wealth creation in rural areas,” says How did the electric cooperatives and their new economic

8 July/August 2000 / Rural Cooperatives vital to ensure that rural people are not infrastructure required to keep rural cational opportunities and health care left on the wrong side of a digital or America viable and competitive grows services to rural communities. social/economic divide. “Dramatic reg- more sophisticated every day. Sixty-five “All of us together still have a big hill ulatory and market changes are occur- years ago, it was basic electricity. In to climb,” Glickman continued. “Let’s ring in the telecommunications, electric today’s high-tech, information economy, make this anniversary more than a cele- and water utility sectors,” McLean said. it’s Internet access, modems and satellites. bration. Let’s use it as inspiration to “Without the help of RUS, rural Amer- “We are beginning to see a gap similar work that much harder to ensure that ica will have a more difficult time keep- to the one we saw earlier this century, rural Americans enjoy affordable access ing pace with the revolutionary changes with most of the tools of the Information to modern electronic tools they need to being experienced in these industries. It Age concentrated in the hands of urban prosper in the 21st century.” is imperative that the federal govern- and suburban Americans,” Glickman ment be actively involved in providing a said. Rural communities, meanwhile, are Editor’s note: Below and following are funding network of support services to in danger of being left behind,” he noted. four profiles of rural electric cooperatives ensure full participation in the 21st cen- “RUS is responding with more resources that RUS works closely with and which are tury economy.” for programs such as distance learning making a major impact on the economy Glickman concurred, saying “The and telemedicine to bring improved edu- and quality of life in rural America.

development entity know what industries to attract or to secure a 10-year, no-interest $400,000 loan from USDA Rural expand? Where did they start in the face of a farm and a rural Development under its Rural Economic Development Loan economy spinning quickly out of control? program. The program provides zero-interest loans to Rural The answers came through research conducted by the Utilities Service-financed electric and telephone utilities to internationally known Battelle Institute. “IADG hired the firm promote rural economic development and job creation. The to comprehensively study Iowa’s development advantages impact of the egg facility is being felt throughout the com- and assets, and come up with a list of the kinds of industries munity with added employment and a new corn market for the state might have the best chance of attracting,” said local farmers. Bruce Hansen, vice president of marketing on the six-person The list of success stories goes on for IADG and Iowa’s IADG staff, located in West Des Moines, Iowa. RECs. The Rural Housing Institute (RHI) recently opened a Hansen said the list identified viable industries for the state, new manufacturing plant to become a resource for communi- including biotechnology, electronics, metal fabrication, plastics, ties to develop, finance, and build affordable housing in rural furniture and other wood products, printing and publishing, val- areas. RHI received an $80,000, zero-interest loan from USDA ue-added agriculture and food processing, warehousing and Rural Development, which was sponsored by Eastern Iowa distribution, and telecommunications. Light & Power in Wilton. “These are our priorities and we keep a clear and definite Meanwhile, T.I.P. Rural Electric Cooperative in Brooklyn, mission surrounding these priorities,” Hansen said. For exam- Iowa, applied for and received $450,000 zero-interest loans on ple, IADG worked hard during the waning months of the 1980s behalf of the Rosewood Farms food-processing project. This and during the 1990s to help re-build Iowa’s egg industry. business will upgrade, renovate and re-open the former Louis Iowa was the No.1 egg-producing state in the 1950s, but it Rich plant in Sigourney, Iowa. had fallen to 24th in the nation by the late 1980s. “These are just a few recent examples of many projects Through targeted marketing and national promotions, Iowa that IADG and the Iowa RECs have helped develop across has climbed back to the top. In 1999, Iowa produced 6.7 billion Iowa during the past 15-years,” said Hansen. “The success of eggs, second only to Ohio, which produced nearly 8.2 billion. IADG is a fine example of the determination of Iowa’s RECs. The state is now number two in layers on feed and in gross Similar to the 1930s — when rural Iowa leaders stood up to egg production. the challenge of bringing electric power to the countryside — IADG worked with Southwest Iowa Egg Cooperative in the RECs continue to be innovators with the foresight to help Massena, which went into full production in December change the economy and landscape in rural Iowa.” 1999. It expects to market some 156 million eggs worth up to For more information on the Rural Economic Development $7 million. The co-op is owned by 275 Iowans and Iowa enti- Loan program, visit our website at: ties, primarily area farmers who wanted better prices for www.rurdev.usda.gov/rbs/busp/redl, or contact any USDA their corn. Rural Development field office or USDA Service Center. Or IADG and the local REC, Farmers Electric Cooperative in call (202) 720-4323, then enter “1” and follow the voice Greenfield, helped the egg cooperative get started. In addi- prompts to be connected to your USDA Rural Development tion, IADG and Farmers Electric helped Southwest Iowa Egg state office. ■

Rural Cooperatives / July/August 2000 9 Pennsylvania co-ops take development underground

The Pennsylvania Rural Electric Association and its several times before it is discharged. The filter works member cooperatives have been key players in establishing through the activity of micro-organisms that colonize the distance learning and telemedicine network links that allow spaces between the sand particles and use the waste mate- rural schools, libraries and hospitals to access information rial in the effluent for food. Finally, an ultraviolet filter kills and specialized training previously only available in urban any remaining bacteria that might have survived. The efflu- areas. But now the association is involved in another initia- ent meets or exceeds federal Clean Water Act standards. tive that gets to the heart of life in rural areas: wastewater PREA is now working to get the system accepted by the management. state Department of Environmental Protection (DEP) for rou- Three years ago, an innovative on-lot sewerage treat- tine use without need for special permitting. ment system installed at a Catherine Township, Pa., resi- “We need to consider the economic side of the problem. dence had a decidedly statewide significance. The system A virtual moratorium on housing and development exists at the home of Valley Electric Cooperative member Gary Dis- because there are no central sewerage systems, which cre- cavage was the start of the PREA’s Rural Wastewater Initia- ates a hardship for many rural people,” Biggica said. tive, an ambitious effort to find a solution to wastewater dis- Pennsylvania has an abundance of water, but it also has posal problems in rural abandoned acid mining areas and work out an facilities, past farming innovative licensing practices that included agreement with the heavy use of chemi- state. cals, and old, leaking Large areas of rural sewerage systems. In Pennsylvania are nei- many areas of rural ther served by central Pennsylvania, owning sewage systems nor land and investing in suitable for conven- property had become a tional septic or sand losing proposition. mound systems. “We have shallow “A virtual moratori- soil here because of um on development the glaciers, and we has been imposed in can no longer use the many areas as a The on-lot sewerage treatment system tested in rural Pennsylvania by the state’s soil or traditional sep- result,” said Russ Big- electric cooperative association uses the newest technology to produce an tic technology,” Biggi- gica, PREA director of effluent that exceeds EPA standards. ca said. public affairs. “We’re As a service organi- talking about some of the most rural of rural areas, and peo- zation, PREA works with local electric co-ops to provide ple can’t sell their homes. They can’t will them to their chil- professional and technical assistance, such as developing dren. They can’t give them away. It’s all because of the comprehensive local development strategies and seeking problems associated with wastewater disposal and ground- out-of-state and federal economic development grants. water contamination.” Pennsylvania co-ops, for example, spurred job creation by The solution is the innovative septic systems PREA, local guaranteeing 24 zero-interest loans secured through USDA’s electric cooperatives and state agencies started testing in Rural Business-Cooperative Service. The projects funded by 1998. PREA can be credited with helping rural people find a these loans benefit entire rural communities, not just areas solution that Biggica said does not promote urban sprawl served by rural electric co-ops. yet does promote improved health and safety. “Helping rural areas find a remedy for wastewater dis- “We did our demonstration projects in which we showed posal problems is a priority for PREA and its member coop- that the system has cleaner water flowing out of it than is eratives,” he stressed. coming out of many of our rural wells,” he said. With more than 60 years of experience in providing In the new system, solids settle and are retained in a affordable and reliable electric service, co-ops are a ready- septic tank before the liquid effluent passes through a filter made delivery system for improving the economic health of and, by gravity, into a box filled with sand, where it is filtered their rural communities, Biggica added. As a result, co-ops still further. The sand box also contains a recirculating pump do more than just supply power. They aggressively work to that distributes, or doses, the effluent over the filter media Continued on page 27

10 July/August 2000 / Rural Cooperatives Maine co-op building support for economic development

In eastern Maine, rural towns average about 361 people. gone unused because — to be useful — it needed the type of Remove the two largest communities in the territory served by major regional development effort now underway, says Jim Eastern Maine Electric Cooperative (EMEC) and that average Dean, chief executive officer of EMEC. “A lot of people in the would drop to 281 hardy Nor’easters. Calais area and elsewhere across the state worked in a very “With populations so low, many towns cannot afford a town coordinated way to bring this about.” Those backers included office, much less someone to focus their energy on economic Maine Governor Angus King, Congressman John Baldacci and development, so along comes the concept of regional develop- Senators Olympia Snowe and Susan Collins and numerous ment,” explains Charles McAlpin, director of public relations governmental organizations. for EMEC, headquartered in Calais, Maine, one of the two Among the project’s many benefits are new, quality jobs largest communities in this most rural of rural Maine regions. and the ability to treat children at home in Maine. Children Economic development professionals agree that develop- who are clients of WCPA are currently sent out of state for ment is more successful if undertaken on a regional basis, treatment, at great cost. This project saves the state money, when individual towns work together as part of a larger com- brings funds to a depressed region from out of state, and, most munity. “The regional effort has three primary advantages,” importantly, will allow local parents to be more involved in the McAlpin adds. “Those include more people to share the work- recovery of their children. load, more money with which to operate, and greater political In Washington County, where unemployment was in the clout to influence state and federal policy.” double digits in the late 1990s, the state and businesses such Three years ago, EMEC entered the planning effort in a big as EMEC have helped refocus efforts on a variety of economic way, helping small towns and businesses band together to development resources. The efforts established a strong part- talk about regional economic development. By helping encour- nership between the State Planning Office and the Sunrise age business growth, promoting the region to perspective County Economic Council to build long-term economic devel- businesses and encouraging internal changes to make the opment capacity for the county. The partnership prompted the region more marketable, EMEC assists the Maine Department SCEC to begin a $1 million endowment drive. of Economic and Community Development and regional coun- The state also spent more than $20 million in Washington cils. EMEC is committed to bringing a renewed quality of life to County for the new Port of Eastport, reconstruction of Route 9 its members who live in parts of Aroostook, Penobscot and and for infrastructure improvements in numerous communities. Washington counties, which border Canada. Meanwhile, Cherryfield Foods expanded cranberry beds. To that end, EMEC has worked with several councils, Atlantic Salmon of Maine built a new processing plant in including Eastern Maine Development Corporation, Sunrise Machiasport, which added 30 jobs. And Destiny 2000 County Economic Council (SCEC) and Saint Croix Economic plans to enhance opportunities for tourism while conserving Alliance (SEA). EMEC took a more direct role, as well. The cultural and natural resources. co-op applied for a $700,000 zero-interest, pass-through loan The SCEC commissioned “Cultivating Jobs from the Sea in on behalf of a local company, Washington County Psycho- Washington County” to develop strategies that encourage the therapy Associates (WCPA). With this money as part of a growth of targeted sectors of Washington County’s marine multi-tiered financing package, WCPA will establish a youth economy. These sectors include: Fish Processing, Aquaculture treatment facility that will create 65 new, skilled jobs in the Support Services, Wild & Cultured Shellfish, Marine region. Engineering and Fabrication, Marine Biotechnology, and This financing was possible through the Rural Economic Marine Research Conferences and Institutes. Harvesters, Development Loan program of USDA Rural Development. aquaculturists, and business people in Washington County are Under this program, electric cooperatives participating in already putting these strategies to work. USDA/RUS programs can apply for pass-through loans for “Regional economic development efforts affect the EMEC businesses creating jobs in depressed rural areas. The coop- service territory,” McAlpin said. “It must be stressed that erative’s involvement in the project did not end with the loan, these are private efforts that cooperate with state efforts, but however. EMEC also sold a building to the City of Calais, pur- are independent of them. While co-op staff have varying levels chased by the city for a business incubator under the of involvement with these different organizations, we encour- Community Development Block Grant program. The city is age anyone with an interest in the future of their region to sup- leasing the building to WCPA for the project, thereby cutting port these groups when the opportunity arises.” ■ the project’s starting cost. Although the program was available for some time, it had — Pamela J. Karg, Field Editor

Rural Cooperatives / July/August 2000 11 Mohave Electric Co-op’s quick response attracts major source of jobs to service area

Mohave Electric Cooperative and its power supplier Power Administration to build a switching yard, funded by joined forces to draft an innovative service agreement in North Star, under existing transmission facilities at the less than four months that helped attract a major new plant site. Through the contracted arrangement, North industry and is the source of 650 construction and/or per- Star takes power directly off the grid at the best market manent jobs added to its Arizona service area. The area’s price available, Harris said. investor-owned utility had tried — unsuccessfully — for Power delivery is handled by the AEPCO dispatch cen- three years to accomplish the same feat. ter in Benson, Ariz. Power travels over WAPA lines, but “This was an innovative power supply agreement that service is provided by Mohave Electric. At no time became this utility’s and throughout the negotia- the state’s first venture tions and contract signing into retail power wheeling were Mohave Electric — long before deregula- assets put at risk, and the tion took effect in Ari- cooperative assumed no zona,” says Mark Harris, new debt. communications manager “It also set a precedent for Mohave Electric Coop- in that Citizens Utilities erative (MEC), headquar- ceded a portion of its ser- tered in Bullhead City, vice territory to Mohave Ariz. Electric. So the North Star Mohave Electric and plant became an island of its generation and trans- our service territory, sur- mission source, Arizona rounded by an IOU Electric Power Coopera- (investor owned utility), “ tive (AEPCO) — both Mohave Electric CEO Robert E. Broz (left) worked with the North Star Harris said. long-time participants in company to provide power to its mill without the cooperative incur- “That MEC and AEPCO USDA’s Rural Utilities Ser- ring debt for capital investment. Photo by Mark E. Harris, courtesy MEC were able to work togeth- vice loan program — put er to meet the needs of a together a package that included 80 megawatts of hourly new customer is a good example of what cooperatives demand so that North Star Steel Co., a division of Cargill, are all about,” said Fred Grigg, a MEC director. He was Inc., would locate its $140 million manufacturing plant in involved in the negotiations over the contract, and also Kingman, Ariz. witnessed MEC’s efforts to help Citizens Utilities and The North Star plant was the first to be built in Arizona North Star negotiate an agreement during the previous that is deriving benefits from the Environmental Technolo- three years. gy Manufacturing Act (ETMA). The ETMA gives long-term “We were excited by the mill’s impact on local eco- tax benefits to companies that primarily produce manu- nomic development,” Grigg added. factured goods through recycling, and companies that MEC serves all of Bullhead City as well as parts of are committed to renewable-energy product manufactur- Mohave County, including the areas north and south of ing. The North Star mill has a high-tech, automated pro- Kingman. Now MEC provides an island of electrical ser- cessing system that uses electric arc furnaces to make vice to the North Star mill near Kingman’s borders, which about 500,000 tons of construction-grade steel from vehi- is otherwise served by IOU Citizens Utilities. cle bodies, appliances and other recycled material that “This type of contract provides North Star with energy at are shipped by road or rail. costs that will help ensure the mill’s success,” said Robert When ground was broken in 1995, the plant brought E. Broz, chief executive officer of MEC. “Our member-own- some 500 construction jobs. Now about 150 permanent ers and AEPCO member-owners benefit through increased jobs have been added to Kingman and Mohave County. sales without incurring debt for capital investment. We The estimated economic impact of the plant on the coun- worked hard with North Star to make this happen.” ■ ty is $23.75 million. The power supply contract required the Western Area – Pamela J. Karg, Field Editor

12 July/August 2000 / Rural Cooperatives Co-op communicators honored

op co-op communicators cattle breeding publica- tions, formerly worked with were honored by their tion, Horizons. Calcot, a Bakersfield-based T peers in Montana in June Sheryl Doering cotton and almond market- for outstanding work and Meshke, Lake Crystal, ing cooperative. Merlo was dedication to cooperatives. Awards Minn., received CCA’s cited by judges for her abil- were presented during the annual insti- Michael Graznak Award, ity to address a variety of tute of the Cooperative Communica- given annually to a young writing assignments. tors Association (CCA). communicator and CCA Sheryl Meshke and Bob McEowen, field edi- James Leuenberger, Shawano, member who has demon- James Leuenberger tor with the Association of Wis., received the H. E. Klinefelter strated excellence in Photo courtesy CCA Missouri Electric Coopera- Award, given annually to a CCA cooperative communica- tives, Jefferson City, earned member who has raised the standards tions. Meshke is communications photographer-of-the-year honors. of cooperative communications and, director for Associated Milk Producers McEowen’s photography focuses on in doing so, has contributed signifi- Inc., at New Ulm, Minn. subjects that convey the message that cantly to the cooperative way of doing Meshke manages the communica- there are opportunities in rural areas business. Leuenberger is vice presi- tions and government relations depart- and that rural areas are a good place to dent of information and public rela- ment. She is in charge of the co-op’s live and work. tions for Cooperative Resources monthly magazine and its member Best-of-class award in the special International (CRI). and employee newsletters and projects/programs competition went to Raised on a Fort Atkinson, serves as treasurer of AMPI’s David Eaheart of Farmland Industries, Iowa, dairy farm, political action committee. In Kansas City, Mo., for that company’s Leuenberger addition, she is the coopera- campaign entitled “Support Trade for earned a bachelor’s tive’s spokesperson and media Farmers, for Farmland, for You.” degree in dairy sci- relations coordinator. Before Judges said the winning entry stood out ence and a master’s joining AMPI in 1991, she due to a comprehensive approach to degree in agricultural was editor and advertising cooperative communications that journalism from Iowa director with Madelia included well-written stories, good use State University. He Media Inc. and of contemporary graphics and a design served as a 4-H and youth worked as a journal- that supported the theme. agent with the Winneshiek ism intern at The Land Honored for Publication of the Year County Extension Service in magazine and Country Times was Janet Hunter, editorial director of Iowa before joining the Nation- newspaper at Amboy, Minn. the Farm Credit Bank of Texas, Austin, al Holstein Association in Brat- She earned a bachelor’s degree in for that company’s Landscapes magazine. tleboro, Vt. In 1975, he was named agricultural journalism at South Dakota The publication showed “exceptional vice president of public relations of State University. She currently is pur- creativity, originality, readability and what ultimately became known as 21st suing a graduate degree in business quality over a broad scope of content,” Century Genetics. communication at the University of St. judges said. As the industry consolidated, 21st Thomas in Minneapolis. She serves on USDA Rural Development’s Rural Century became part of the new CRI the CCA board. Cooperatives won a third place award for organization in 1993 and Leuenberger CCA named Catherine Merlo, Bak- best magazine, and field editor Pamela assumed his present position at that ersfield, Calif., as writer of the year. J. Karg won a second place news writ- time. He now manages a staff of 17 in Merlo, who heads a communications ing award for an article about President four different locations. He also serves firm that works closely with a number Clinton’s visit to an Arkansas tomato as managing editor of the cooperative’s of cooperatives and related organiza- cooperative. ■

Rural Cooperatives / July/August 2000 13 USDA, Commerce join forces to boost early warning system

ach year, thousands of of rural people nationwide,” Glickman well as partnering with them to install people die, are injured said. “West of the Mississippi River, transmitters.” or lose property more than two-thirds of the land area is Utilities willing to mount a trans- E because they didn’t still not covered by this vital radio ser- mitter will be asked to donate power to receive adequate vice, and large areas of the eastern third run it, including an emergency back-up warning of approaching weather haz- of the country also lack coverage.” power source. The savings from using ards or natural disasters. When people Inadequate warnings of approaching existing towers and power supplies can know disasters are coming, they act. hazards, such as floods, tornadoes and more than double the deployment of For many, the best chance they have to hurricanes, are particularly acute in the weather radio transmitters. avoid an approaching weather emer- nation’s rural areas. Once the transmitters Jill Long Thompson, USDA under gency is the 24-hour disaster warning are installed, households will be able to secretary for rural development, said network of the National Oceanic & receive warnings through NOAA radios, this is an ideal public service effort for Atmospheric Administration (NOAA). the Internet, pagers and telephones. rural utility cooperatives to pursue. Agriculture Secretary Dan Glick- “This agreement is a real life saver “What better way for cooperatives to man has announced that the U.S. Depart- ment of Agriculture and the Department of Commerce are creating a partner- ship to extend NOAA’s emergency radio service to more rural areas of the nation, large portions of which still do not have coverage. Through the agree- ment, the Rural Util- ities Service (RUS) of USDA Rural Devel- opment will encour- age the installation of emergency radio transmitters by iden- Missouri rural electric officials discuss how a new NOAA weather alert system will be installed along powerlines. tifying rural utility Photo by Jim McCarty, courtesy Missouri Electric Cooperative Association towers not currently receiving the NOAA transmissions. for rural Americans,” said Jack Kelly, show their commitment to public ser- NOAA will work with the utility co- assistant administrator for the National vice than making this life-saving tech- ops to install the transmitters to pro- Weather Service. “The Rural Utilities nology available in their service areas?” vide the warning signal to that area. Service’s long-standing relationship For more information on this pro- “The cost of installing radio transmit- with electric and telephone coopera- gram, contact RUS’ national office at ters is small when you consider the life- tives will make it easier to identity (202) 720-1255 or visit the NOAA saving service it will provide to millions weather radio transmission sites, as website at www.nws.noa.gov/nwr. ■

14 July/August 2000 / Rural Cooperatives IN THE SPOTLIGHT Dennis M. Mullen President & CEO, Agrilink Foods, Inc., Rochester, N.Y. Cooperative Communicators Association’s CEO Communicator of the Year

Co-op description: he moved to Agrilink’s Curtice Burns Agrilink Foods is a $1.5 billion Foods. In 1996, Mullen was named chief national food company that processes operating officer for Agrilink, and markets a variety of product lines Rochester, N.Y. Six months later, he was of branded, private label and foodser- promoted to president and chief execu- vice products in 32 facilities located tive officer. throughout the United States and in Dennis Mullen: “Our mission is to explain Mexico. Included in Agrilink Foods’ Community and industry roles: why we do what we do.” Photo courtesy Co-op portfolio are the Birds Eye, Mullen serves on the boards of Communicators Association Veg-All, McKenzie, directors for the following Comstock, and organizations: American ately in any conversation, meetings, etc. Wilderness Heart Association, Gene- Our communications mission is to brands. see Valley Region; Gro- explain ‘why we do what we do,’ and we Agrilink cery Manufacturers of have a variety of vehicles to help achieve Foods is a America; National this goal. I am committed to sharing this wholly owned Food Processors Asso- vision, in person, wherever possible.” subsidiary of ciation; St. Leo Col- Mullen is about to begin another Pro-Fac lege; The Popcorn series of employee meetings across the Cooperative, Institute; United Way country. These ‘road shows’ will be an agricultural of Greater Rochester; similar to what he did a couple years marketing coopera- Rochester Institute of Tech- ago when he met with all employees, in tive which consists of nology, School of Food, Hotel small meetings during day and evening more than 600 member- and Travel Management national shifts over several weeks. The first growers. It processes fruits, vegetables advisory board; and Chase Manhattan series of meetings was prior to and popcorn through its subsidiaries, Bank, northeast regional advisory board. Agrilink’s acquisition of the former Agrilink Foods and AgriFrozen. Pro- Dean Foods Vegetable Co., which has Fac Cooperative is also now doing Greatest challenge facing Agrilink: now doubled the number of employees. business under its Agrilink name and Our greatest challenge is one of con- This year’s trip will mean meetings, in only uses the Pro-Fac name in legal tinuing to compete and grow in the larger groups, to address the nearly documents. extremely competitive food business, 6,000 employees now part of Agrilink. where mergers continue to create fewer, “When I meet with employees or Professional background: but much larger companies with greater members and they understand our mis- Mullen graduated from St. Leo Col- economies of scale. We must be a low- sion...our core values...our strategic lege, St. Leo, Fla., with a bachelor of cost operator in everything we do, from thrusts, then I know we are getting that arts degree in education. Before joining purchasing to manufacturing to admin- message throughout the organization,” the Pro-Fac Cooperative family, he was istrative functions. This is the challenge Mullen explains. “We recently pro- with Globe Products Co., Clifton, N.J.; I’ve presented to our employees and will duced an orientation video for new The Nestle Co., White Plains, N.Y.; continue to pursue as we move forward. employees and I was thrilled to hear Farmland Industries, Franklin Park, some of the concepts about being a Ill.; and Butoni Foods, South Hacken- How do you view your ‘low-cost producer,’ ‘excellence in per- sack, N.J. communication role as the CEO? formance,’ and ‘working together as Mullen joined Agrilink Foods in its “I’m a true believer in the impact teams’ being repeated by our employees Nalley Fine Foods division in Tacoma, communications can have on all aspects in the video. That tells me our commu- Wash., in 1990. After three years there, of business and I promote this passion- nications efforts are working.” ■

Rural Cooperatives / July/August 2000 15 Generating rural progress Study finds that new-generation and traditional co-ops have major beneficial impacts on rural communities

Editor’s note: A group of Midwest university professors collaborat- of Kentucky; Roger Ginder, Iowa State University; Evert Van der ed on a study that includes a close look at five cooperatives and the Sluis, South Dakota State University; Michael Cook, Deanne impact they have had on their respective communities. These Hackman and Kristi Livingston, University of Missouri-Colum- included three new-generation cooperatives, a traditional coopera- bia; Gary Goreham and Frayne Olson, North Dakota State Uni- tive that had changed its relationship with members, and a group versity; Beth Honadle, University of Minnesota; and Linda Jacob- of local governments using a cooperative business model to deliver son, University of Wisconsin-River Falls. services in rural areas. The following material has been excerpted or summarized from Coordinating the study were David Trechter, University of Wis- their study, USDA/RBS Research Report 177, by Patrick Duffey, a consin-River Falls, and Robert King, University of Minnesota. writer/editor with USDA Rural Development’s public affairs office. Contributors were: Robert Cropp and Anne Reynolds, University The full text can be accessed on the USDA Rural Development web- of Wisconsin Center for Cooperatives; Kimberly Zeuli, University site at: www.rurdev.usda.gov/rbs/pub/research.htm.

s the new millennium One of the objectives of the study, opens, the U.S. food conducted during the fall of 1997 and A system is still in the the winter of 1998, was to summarize midst of profound the experiences of cooperatives and structural changes that will have a sig- their impact on local communities. nificant impact on farmers, agribusi- nesses (including cooperatives), rural How co-ops boost rural communities communities and consumers. These All cooperative businesses, the study changes include a wave of new farmer- notes, are based on three fundamental owned processing cooperatives formed operating principles: one vote per by growers who see their best odds for member; the business is owned by success hinging on their ability to keep those who use it; and earnings are more of the value-added dollars gener- Soybeans are inspected prior to processing returned to members in proportion to ated from their crops and livestock. at a plant built by South Dakota farmers who how much they use the cooperative. Consider the case of Great Plains were tired of shipping out raw product and These principles exemplify the differ- wheat producers, who in 1997 received bringing back in finished product. ences between cooperatives and only 10 cents of each consumer dollar Photo courtesy South Dakota Soybean Processors investor-oriented firms (IOF). IOF vot- spent on cereal and bakery products. because it is the home of the greatest ing is based on the number of shares Nationwide, farmers reaped just 23 concentration of cooperatives in the owned, ownership is not limited to cents for every consumer dollar spent United States. Nine of the top 10 those using the business, and earnings on food in 1997, compared with 37 cooperatives, when ranked by 1997 rev- are returned to stockholders in propor- cents per food dollar in 1980. enues, are located in the Midwest. tion to investment. During the 1990s, more than 50 new Among them are Farmland Industries, “As user-owned organizations, coop- cooperatives were established in the Cenex Harvest States, Growmark, eratives provide a model for individual Upper Midwest, with most of them Land O’ Lakes and grocery wholesale self-help and empowerment that based in rural communities. This surge cooperative Associated Wholesale Gro- strengthens bonds leading to greater of interest in forming new-generation cers of Kansas City. There are also community awareness and involvement,” cooperatives (NGCs) is creating spin- many smaller co-ops in the region, says Randall Torgerson, deputy adminis- off economic benefits to the communi- ranging from credit unions and rural trator of USDA’s Rural Business-Coop- ties where these new businesses locate. electric cooperatives to natural foods, erative Service (RBS). “Cooperatives This study focused on the Midwest housing, and agriculture co-ops. have been created in response to the

16 July/August 2000 / Rural Cooperatives needs of agricultural producers and oth- cooperative stock is linked to delivery had been shipped out of a region are er rural residents faced with rapidly rights and responsibilities. instead processed locally, it generates changing forces that affect their liveli- Cooperatives usually have a positive more jobs and local income. Processing hoods and well-being. Cooperatives not impact on rural communities in part and other new cooperative facilities only provide access to markets not oth- because operating and service decisions enhance the local tax base and erwise reached, but also provide mem- are made locally. Thus, cooperatives strengthen the demand for retail sales ber-owners with an opportunity to have little incentive to close or move and services, triggering the creation of improve incomes and services.” their operations in order to increase other local businesses. This, in turn, Traditional agricultural cooperatives their return on investment. Net earn- may trigger the need for new housing are easy to join and difficult to leave. ings are returned to members and and improvements in local schools and In contrast, new-generation coopera- cooperatives contribute to local eco- other community facilities. tives are more difficult to join, but nomic development. They also help to Cooperatives may also increase the often easier to leave. The substantial foster an attitude of self-help and self- social cohesion of a community by pro- up-front investment farmers or ranch- initiative in a community. viding local meeting places and a greater ers need to make in new-generation When agricultural commodities that sense of community pride. A cooperative store may become the social and eco- nomic hub of a community. Coopera- tives also make donations to local service clubs and create scholarships. Following are highlights from the research report relating to each of the five cooperatives studied.

Farmers’ Cooperative Association, Keota Farmers’ Cooperative Association, Keota (FCAK), is a farm supply and grain marketing cooperative located about 40 miles southwest of Iowa City. It had gross sales of more than $22 mil- lion in 1997 and a membership of 668. It employs 47 people, making it one of the larger employers in Keota. FCAK is working with Farmland Industries on an innovative program that could help reverse the decline in the state’s hog industry. In 1997, Iowa ranked first among all states for hog pro- duction, with 22 percent of the nation’s hogs. But production is shifting to the South and Southwest, and some produc- ers felt their operations had to change. Iowa farm numbers have fallen and the remaining operations are growing larger. The decline is a major concern because hog production adds value to the state’s corn crop, creates a market for other feedstuffs and demand for farm services and equipment. It also creates jobs in the marketing, slaughter and processing sectors. New-generation cooperatives get farmers closer to the consumer through value-added New production technologies have processing, and the organizations that these innovative farmers build help bring diverse led to the construction of large-scale, economic vitality to rural communities. low-cost hog production farms. These farms are designed to meet consumer

Rural Cooperatives / July/August 2000 17 demand for leaner, more consistent tion, including construction guidelines duction systems. The FCAK board had pork products. In turn, meat packers for buildings and simplified financing, to decide whether to invest members’ need large numbers of uniform-quality as well as a source of high-genetic- capital to encourage hog production hogs from a single source. Also, an quality feeder pigs. Farmland offers (which would require building a new increasing percentage of this country’s marketing agreements that include feed mill), or to expand grain handling food supply is distributed via highly market price-risk sharing programs, and storage facilities. integrated agribusiness firms. Larger futures contracts and carcass-merit The board eventually opted for the scale hog operations have benefited pricing. Other services include access Farmland hog programs, and held from these trends. to swine specialists to assist with man- three meetings to present its proposal The “traditional” hog producer with agement, and feed and services provid- to the members. Member reaction less than 500 sows is struggling to com- ed by the local farm supply coopera- ranged from those who thought the pete with these mega-farms. Capital tive. proposal was a great idea, to those who costs and associated market risks pre- Under the contract-building system, saw the plan as a threat to their own vent many young people from entering farmer-members invest in the hog-fin- hog operations and a loss of their eco- hog production. ishing buildings and provide labor for nomic independence. Based on member reaction, the board voted to adopt the Farmland hog programs (state law required a mem- bership vote to formalize the plan), even though it lost members in the ensuing controversy. By 1997, eight members were participating in the Farmland program — a small number, but those eight farmers represent about half of the cooperative’s feed business. Their increased level of business justi- fied the cooperative’s investment in a new feed mill, which is benefiting all members. FCAK was also able to hire a grain-marketing specialist who pro- vides members with precision agricul- tural services. Those members with Iowa producers are meeting consumer demand for leaner, more consistent pork products by Farmland contracts have reduced their following a Farmland swine program. Meeting consumer expectations can mean better market risks. The Farmland program prices to producers. Photo by Jim Tucker, courtesy Farmland has also helped younger producers obtain the resources needed to enter FCAK had been losing business to the hog-finishing process. Farmland the business. competitors offering various services to retains ownership of the pigs, assumes The program got off to a somewhat farmers, such as record keeping. The price and production risks, provides the rough start — some members felt cooperative’s board approached Farm- feed and covers health maintenance Farmland should have provided more land Industries for assistance and met costs. In some contracts, a premium is details early on about the contractual with an Iowa State University Exten- paid for reaching defined performance arrangements, and there were some sion specialist to discuss possible standards, but most participating farmers initial disease problems. But since then, responses to these structural changes in receive a guaranteed payment per pig participating farmers appear to be hap- hog production. space. py with the program. Farmland offers a “contract-building Both programs require that the hog Some farmers initially had trouble system” for its farmer-owners, and farmer purchase feed from FCAK if the securing credit to participate, but local manages another type of swine pro- farm is located within a 25-mile radius financial institutions are now more gram for independent producers, of the cooperative. This agreement familiar with the program and are more known as an “alliance farm system.” holds for 10 years, after which a farmer willing to make loans to farmers wish- Traditionally, farmers have retained is free to purchase feed from anyone. ing to enroll in it. Between 1990 and ownership of production facilities and Thus the local cooperative benefits from 1997, gross sales for the cooperative their hogs, accepted all risks and higher feed sales and other services. increased 137 percent, from $9.4 mil- reaped all returns for production. The Each month for nearly a year, the lion to $22.2 million, although not all alliance system offers a way to help board discussed the pros and cons of that growth can be attributed to the smaller operations expand hog produc- participating in Farmland’s hog pro- swine program.

18 July/August 2000 / Rural Cooperatives Ultimately, this swine program quality livestock feed, annually from 6 state of Missouri has been very helpful boosted economic activity in the city million bushels of corn. in the formation of new-generation and county. Higher net corn prices The cooperative’s 311 farmer-own- cooperatives. The Missouri Depart- resulted because corn no longer had to ers invested $5.6 million in the facility, ment of Agriculture hired a cooperative be trucked out of the area. The higher which cost $23.5 million to build. The marketing specialist to assist producers profit levels and experience in financ- project was launched in 1994. Like with cooperative development. The ing the programs increased the avail- many other ethanol plant operations, state legislature created grant programs ability of credit from the local bank. this one is structured as a new-genera- to assist with activities such as feasibility Construction of hog facilities provided tion cooperative. While Missouri is not studies and business plans for projects employment for local building contrac- the epicenter of the new-generation that add value to agricultural commodi- tors and increased the need for local co-op movement, this ethanol coopera- ties. The state also provided partial loan veterinarians. More young people have tive nonetheless illustrates the opportu- guarantees for value-added projects. been able to remain in the community. nities and challenges faced by those Producers consider increased prof- The cooperative added employees and attempting to transplant this business itability derived from processing their other local businesses also gained. A innovation into new areas. corn as the primary direct benefit of new library has been built, the local NMGP, organized in park has been improved, and commu- 1995, currently has a 13- nity pride has increased. member board and 30 The co-op has also provided bene- employees. During the fits to non-members. With a gas sta- organizational phase, site tion and tire service, home heating and applications were received air conditioning services, etc., FCAK from nine counties repre- provides the community with much- senting 15 communities. needed competition for both agricul- Information meetings were ture and consumer goods and services. conducted in 25 counties. A Because contract-hog production is limited liability company often controversial, a cooperative was eventually formed to entering this business arena must pro- own and operate the plant vide ample information to its members and sell the byproducts. Northeast Missouri producers are putting their commodity outlining the benefits to them, the Initially, 274 members product into a new ethanol plant. Photo courtesy NMGP impact on the cooperative’s profitabili- purchased 1,632 units of ty, availability of new services, and the stock at $2,500 per unit, or slightly the new cooperative, and they antici- potential economic impact on the local more than $4 million in producer equi- pate higher corn prices as well. New community in terms of business and ty. In a second equity drive, both exist- jobs and an expanded local tax base are employment. Such major projects take ing and new members purchased an rated as the primary community bene- a minimum of two years. additional 428 units at $3,000 each. fits. The cooperative is also credited The cooperative feels it is keeping NMGP holds an 84 percent share of with stimulating related business activi- hog production in the hands of farm the LLC that owns the ethanol plant. ty, such as trucking. families and can have many multiplier The cooperative faced an initial chal- Five key lessons for those launching effects by offering more services to its lenge in raising equity capital. Local new cooperatives were learned from members and the community. farmers were unfamiliar with new-gen- this case study: 1) remain flexible Enhanced profitability of the farmers eration cooperatives and there was (NMGP changed its initial opinion spills over to enhance business activity uncertainty about federal and state leg- about the type of technology to be in the local community and more local islation affecting ethanol production. employed at its ethanol plant and employment opportunities. Missouri’s variable weather also often regarding the prerequisites of a good puts heavy demands on a farmer’s cash plant site); 2) don’t underestimate the Northeast Missouri Grain flow reserves, and state law restricts the time required to develop a new-genera- Processors (NMGP) sale of investment securities. Once tion cooperative (it took time to edu- Northeast Missouri Grain Proces- Macon was selected as the plant site, cate farmers, lenders, state legislators sors (NMGP) cooperative opened Mis- cooperative backers had to contend and state agencies); 3) state statutes souri’s first ethanol plant on April 29, with a drop-off in support for the ven- governing new-generation co-ops must 2000, at Macon, Mo., about 60 miles ture among producers in other area be well understood and may need to be north of Columbia. When fully opera- communities who had hoped their changed; 4) economic development tional, it will produce 15 million gal- town would win the new facility. programs at the state and local level are lons of ethanol and 100 million pounds After an initial period of uncertainty often ill suited to cooperatives; and 5) of dry distiller’s grain (DDG), a high- about this new organizational form, the tap the knowledge and expertise of oth-

Rural Cooperatives / July/August 2000 19 ers interested in rural development, 2,092 members, about 70 full-time and has inspired others to seek financial such as rural electric cooperatives. workers, an annual payroll of $2 mil- opportunities by participating in new- If this cooperative proves successful, lion, total assets of $48.4 million and generation cooperative activities. Per- the board, farmers and community $29.2 million in member-owned equity ceived negative impacts include heavier leaders say they believe it will provide a in the plant. Sixty-eight percent of the rail and truck traffic and possible powerful model for other value-added $8.5 million in net proceeds in 1998 reduced economic opportunities for processing cooperatives in Missouri. As was returned to members as cash local grain elevators. board Chairman John Eggleston said, patronage refunds. The cooperative is credited with “It will be much easier to be second The cooperative’s processing capaci- stimulating the local economy, creating than to be first.” ty was expanded from 50,000 to 65,000 new jobs, a higher tax base and new bushels of soybeans per day in the first activity in service industry businesses. South Dakota six months of the plant’s operation, and Directors and co-op members take a Soybean Processors later expanded again to 70,000 bushels. great deal of pride in having created a South Dakota Soybean Processors As has been the case in many similar locally owned soybean processing (SDSP) transforms members’ soybeans projects, the site-selection process cooperative in a market dominated by into soy oil and soy meal. Prior to its caused a temporary rift to develop large, powerful multi-national compa- existence, lack of a soybean processing among the founders of the cooperative. nies and regional cooperatives. plant in the state forced producers to Farmers and other community ship soybeans to neighboring states. members needed a large amount of The Dakota About 40 percent of the processed information to convince them to com- Growers Pasta Co. beans were transported back to South mit to the cooperative. SDSP would The Dakota Growers Pasta Co. Dakota again in the form of soy meal not have been possible without a group (DGPC) at Carrington, N.D., is recog- for livestock feed. of very active individuals committed to nized as one of the most successful This new-generation cooperative achieving the goal of developing a soy- new-generation cooperatives to emerge began operating in late 1996. It bean processing facility. in the Great Plains. New-generation processes raw soybeans into crude soy- The plant has helped raise soybean cooperatives such as DGPC appear to bean oil, high- and low-protein soy- prices in the area and has generated do best when they develop and/or bean meal, and soybean hulls. Soy meal profits during its first two years of exploit a niche value-added market. is sold throughout the Midwest, the operation. However, continued vigi- DGPC capitalized on the growing pop- Pacific Northwest and Canada. Soy oil lance by the cooperative’s members and ularity of pasta and established itself in is marketed to Harvest States Coopera- management will be critical to its con- this expanding niche market. tive in Manka- tinued suc- In 1996, North Dakota was the to, Minn., cess. They country’s leading producer of durum where the oil is will need to wheat, which is the primary input for further refined monitor DGPC pasta, but durum production for human con- regional, has been hit by serious disease prob- sumption. The national and lems in recent years and production hulls are pellet- global market had been declining. ed by SDSP and conditions Dakota Growers mills its durum sold to an out- for soybeans wheat into semolina, which is used to side vendor. and soy- produce pasta products. The coopera- To launch Soybeans harvested in South Dakota can now be based prod- tive is one of only a few fully integrated the cooperative, processed by a farmer-owned cooperative, which ben- ucts. pasta manufacturers in the United organizers con- efits not only growers, but the rural economy of the States. The cooperative was developed ducted nearly area. Photo courtesy South Dakota Soybean Processors. Resources under nearly ideal conditions with sub- 200 meetings, required for stantial assistance from the state for reached 6,000 farmers and developed a developing and operating a successful feasibility and marketing studies and limited membership plan and a uniform cooperative often are limited in rural other facilitation assistance from the marketing agreement. Members were areas. New-generation cooperatives, state association of rural electric coop- initially required to purchase a mini- like other cooperatives, must operate eratives. Most of the 1,085 members mum of $5,000 in shares. The board efficiently, which requires sufficient reside in South Dakota. In 1997, voted to build the $32.5 million plant member territory. On the other hand, DGPC had 247 employees. in Volga, S.D. It is still the only soy- SDSP’s early success motivated local DGPC state-of-the-art facilities bean processing plant in South Dakota. leaders to become involved with other turn durum wheat into high-quality As of 1998, the cooperative had value-added endeavors in the region semolina, durum flour, and millfeed;

20 July/August 2000 / Rural Cooperatives units of government to realize the economies of scale associated with con- solidation without the real and emo- tional costs that come with disbanding community. Farm- existing local governmental structures. ers need informa- WACCO’s initial goal was to pur- tion from trusted chase municipal supplies and services sources, including the (e.g., snow plow blades, road salt, office cooperative’s officials equipment and supplies) at reduced and leaders and prices. By aggregating orders and act- neighbors in their ing as a broker with competing suppli- own communities. ers, WACCO generated significant sav- Photo courtesy Dakota Growers Pasta Co. ings for its members. Western Areas Cities and WACCO also has facilitated equip- the co-op then processes semolina Counties Cooperative (WACCO) ment sharing among member govern- using advanced Italian pasta processing Local governments, especially those ments. It has created an inventory of equipment. By 1998, annual capacity in rural areas, are facing a number of equipment available in each of its reached 30 million pounds. Net rev- challenges. Population levels, particu- member communities. Members nego- enues, sales, net incomes and patronage larly in the Great Plains, are stagnant tiate rental terms among themselves. dividends have climbed steadily. or shrinking. Agriculture, long the eco- Leased equipment is moved from com- DGPC gave Carrington a psycholog- nomic bulwark for many rural areas, is munity to community as need arises. ical boost and came on the heels of an undergoing a structural transformation One community realized substantial agricultural decline and very demoraliz- toward fewer, larger, more vertically savings by renting a rarely used piece of ing time for farmers. The plant is credit- integrated and much more technologi- equipment from a neighboring munici- ed with helping to boost durum prices cally sophisticated farms and ranches. pality. This one transaction more than substantially, although the smaller har- Consolidation means fewer potential paid for annual dues to WACCO. vests have also played a role in the high- local leaders, fewer children for the WACCO has become a major er prices. Members gained a market for schools, and consumers who often provider of training for local govern- durum wheat, new crop research on bypass local stores. Resistance to mental employees. Prior to WACCO, durum and production advice from the increases in taxes, particularly the prop- training workers typically took place in cooperative. DGPC also benefited non- erty taxes upon which many local gov- the Twin Cities, at significant expense. members by improving the market for ernments depend, has created signifi- WACCO has been able to bring trainers durum wheat (non-members can access cant fiscal constraints. Within this to western Minnesota. WACCO also DGPC’s grain-marketing pool). Mem- context, Western Areas Cities and acts as a clearinghouse of information bers also learned about the food industry Counties Cooperative (WACCO) at and a liaison with state and national reg- and why durum of the highest quality is Fergus Falls, Minn., was developed. ulatory agencies. required for production of pasta. WACCO is a cooperative organiza- WACCO estimates that during a An improved tax base and more and tion owned by the governments of seven typical year it saves members in excess better jobs are seen as major benefits of counties and 18 small towns. It is a mod- of $500,000. the pasta plant. Among negative factors el that could have widespread applica- … cited by some is that the plant con- tion throughout the United States, espe- Cooperatives, which played a key tributed to a housing shortage, cially in rural areas. Local governments role in the evolution of the food sys- increased traffic and a more transient nationwide are facing increasingly com- tem, are increasingly viewed as an insti- population. This study reveals that, in plex demands as activities previously tutional tool for enhancing farm prof- addition to higher income, farmers also performed by federal or state govern- itability and fostering the development choose to join NGCs based on the like- ments are being transferred to the local of rural communities. In the best ly impact on their community. level. Citizens are also demanding more cooperative development projects, Locating a new-generation coopera- efficient delivery of services. there is a synergistic relationship tive manufacturing plant in a commu- A common response to similar pres- between the project and the communi- nity works best when community and sures in the private sector has been to ty. The cooperative benefits from the cooperative officials focus on their consolidate into fewer, larger firms. expertise and financial assistance of the shared interests. Strong, hard-working, There has been no parallel trend in the state and local governments and the visionary leadership is essential both to public sector. Resistance would likely communities receive real (jobs, taxes) initiate the cooperative venture and to be quite vigorous if two counties pro- and intangible (psychological boost, attract the manufacturing plant to a posed a merger. WACCO allows local model for others) benefits. ■

Rural Cooperatives / July/August 2000 21 MANAGEMENT TIP

Consultant’s feasibility study can predict success of ‘next great idea’

James Matson first time in a project development list below provides possible criteria for Agricultural Marketing Specialist process that the pieces are put together selecting a good consultant. A group USDA-Rural Business Services to see if they perform together to cre- should determine that the consultant is ate a technically and economically fea- qualified to create the feasibility study Editor’s note: This article is excerpted sible concept. The study also shows the for the particular project. Also, any from the author’s forthcoming report sensitivity of the business to changes in consultant must be able to work well “Cooperative Feasibility Study Guide” these basic assumptions. with the group. (USDA/RBS Service Report 58), available Feasibility studies contain standard soon on USDA Rural Development’s web- technical and financial components. Criteria of a Good Study Consultant site, www.rurdev.usda.gov. The exact appearance of each study 1. Previous experience conducting fea- varies, depending on the industry stud- sibility studies; armers and their coopera- ied, the critical factors for that project, 2. Experience with the industry to be tives continually search the methods chosen to conduct the fea- studied; F for that “next great idea.” sibility study and the study budget. 3. Understands cooperatives; After they think they’ve Emphasis can be placed on various sec- 4. Willingness to listen to the group’s found it, the real work begins. tions of an individual feasibility study, ideas; Background studies are necessary to depending upon the needs of the group 5. Works closely with designated con- determine whether that great idea is for whom the study was prepared. tact members of the group; viable and if farmers should invest time, 6. Accepts reasonable revisions to the effort, crops and money in it. The objective consultant submitted study; Feasibility studies are a useful tool The feasibility study evaluates the 7. Accomplishes the study within an and valid for many kinds of projects. project’s potential for success. Its per- agreed deadline; Evaluation of a new venture, both from ceived objectivity is important in 8. Works within the group’s designated new groups and established businesses, determining the credibility placed on budget; is the most common application, but the study by potential investors and 9. Provides clear, useful information in not their only use. Studies can help financiers. The creation of the study the completed study. groups determine whether to expand also requires a strong background existing services, build or remodel facil- both in the financial as well as the Experience ities, change methods of operation, add technical aspects of the project. That’s Does the consultant have an ade- new products, or even merge with why outside consultants conduct most quate background to prepare the feasi- another business. A feasibility study can feasibility studies. bility study? Before contracting a con- assist decisionmakers whenever they Although in principle it is possible sultant, the group should review need to decide among alternative for a group member to conduct the samples of previously prepared studies development opportunities. study, outside consultants produce most and speak with others for whom the This analytical tool used during the feasibility studies. Prospective members potential consultant has worked. project planning process shows how a and financiers see the objective evalua- If the project is of sufficient size and business would operate under an tion of a concept as an important aspect complexity, it may hire several consul- explicitly stated set of assumptions — of the study. This objectivity can pro- tants to complete various aspects of the the technology used (the facilities, vide helpful information that might feasibility study. Multiple consultants types of equipment, manufacturing have been overlooked by people partic- can reduce the dependency on a single process, etc.) and the financial aspects ipating directly in the project. person or company. It also can permit of the project (capital needs, volume, Hiring a consultant to create the the group to select experts from several cost of goods, wages etc.). study can be the most important deci- fields. However, it can complicate the The feasibility study represents the sion in the creation of the study. The coordination and consistency of the

22 July/August 2000 / Rural Cooperatives information received. Consultants have a legal obligation to complete the feasibility study and The consultant preferably would provide a responsible analysis. They reduce the cost. have experience in the industry under should not be asked to alter the results study. The consultant may be an merely to conform to members’ desires Useful information expert at creating feasibility studies for a project’s viability. Some public programs offered by but, if he or she has no knowledge of the USDA’s Rural Business-Coopera- the specific industry, probably will not Meeting deadlines & costs tive Service, community development correctly identify critical factors for When selecting a consultant, timeli- offices, the Small Business Administra- that industry. Given business complex- ness is an important consideration. tion and local business incubator pro- ity, it is almost impossible for one per- Projects are time sensitive. Usually, grams provide technical assistance at son to have experience in all areas of a decisions to proceed await information no, or minimal, cost to groups creating business. provided in the feasibility study. feasibility studies. Often, a team of consultants assem- So care and diligence required to A consultant should be willing to bles feasibility studies. For example, a prepare a well-crafted study must be provide the data used to generate the cooperative development specialist balanced against the desire for speed. If financial tables and scenarios reported from the USDA might work jointly a qualified consultant cannot complete in the feasibility study, and preferably with industry specialists to create the a well-designed study in a time frame an electronic spreadsheet format that feasibility study. Some consulting firms resolve this issue by having feasibility specialists and contracting with indus- try experts to create a feasibility study.

Cooperative knowledge The consultant should also under- stand the unique aspects of coopera- tives. Tax implications and business considerations of cooperatives differ from those of other businesses. These factors could decrease or increase pro- ject risks. The consultant should be familiar with cooperatives to properly evaluate these effects. The consultant should avoid pre- conceived notions about how the pro- ject will function. The study should not be an “off-the-shelf” document put Co-op managers and directors need to evaluate and to communicate up-front with consultants together from previously created stud- to ensure the final report provides sound advice for following up on that “next great idea.” ies. Rather, the consultant should pay Photo by Glen Liford, courtesy Tennessee Farmers Cooperative particular attention to the ideas that the group has developed and craft a unique study suited to their needs. that serves the group’s needs, he or she can be easily manipulated. Though The consultant should work closely should not be used. requesting this information can mod- with designated members of the group On the other hand, the timeline erately increase the cost of a feasibility and be receptive to their suggestions. must be realistic. A consultant can only study, access to the actual data permits Also, the consultant should be prepared progress as fast as a group makes the the group to use the information later. to make technical revisions or to cor- required decisions, provides informa- This data can reduce the cost in rect errors at their recommendation. tion to the consultant and carries out creating the business plan, if the group Revisions are a normal part of the feasi- its other project responsibilities. proceeds to that stage. It can also bility study process. Cost is an important factor. The decrease the effort required for revi- Revisions should focus on the validi- expertise and skills that consultants sions, if the group changes the project ty of the assumptions and the technical offer a project must be weighed against in the future to differ from those in design of the study. Using an outside their expense. A quicker timeline could the study. consultant brings objectivity to the fea- increase the charge of a consultant. At sibility study rather than merely pro- times, preparing a pre-feasibility analy- The legal ties that bind viding the results that group wants. sis can decrease the effort required to Once the consultant has been select-

Rural Cooperatives / July/August 2000 23 ed, the group should give him or her contact for providing clarification and ceeds. Changes are then conveyed to detailed instructions on the require- additional information that the consul- the consultant. ments for the study. A paid consultant tant may require. should be hired with a legally binding These members should give periodic Accepting the completed study contract between the parties. The reports regarding the progress of the After the review is complete, the con- group should consult legal counsel for feasibility study. They also should work sultant normally makes a final report to assistance with this contract. with the other group members and advi- present key findings and recommenda- The contract should state clearly the sors to gather the information needed to tions. requirements and role of both the group prepare the feasibility study. These The group usually makes the prelimi- and the consultant. It should have time- members should express the wishes of nary decision to accept or reject the lines, delivery dates, explicit deliverables the entire group and not their own. study. Often, the contact members who and agreement on what is to be accom- Members or outside financiers will have been working with the consultant plished before payment is made. often judge the perceived reliability of and have the most knowledge of the fea- Often consultants receive a down pay- the entire study based on its least accu- sibility study, make a recommendation to ment before the study begins. The bal- rate piece. An otherwise well-conducted accept or reject the study. ance is paid only after the study has been feasibility study could be viewed as inac- The final decision rests with at least reviewed and accepted by the group curate or useless by a simple mistake. the entire steering committee. In many (and, possibly, financiers, if appropriate). To prevent this, the study should be circumstances, the entire group must This gives the group more leverage to carefully reviewed. It should be exam- grant final approval. encourage timeliness or revisions. ined for overall clarity and logical con- Approval should be based on the tech- The contract should designate a sistency, and the appropriate questions nical quality of the study. Does it fulfill third party arbitrator to resolve any dis- should be asked. Is the language appro- the work expectations that the group had puted items. priate? Is the document well orga- when contracting with the consultant? Before signing the contract, the nized? Can someone who is not famil- Do the ideas presented differ substantial- group should discuss with the consul- iar with the project understand the ly from those of the members for the tant arrangements for cost overruns, study? The reviewers should confirm project? Does the study contain signifi- time delays and revisions. As Murphy’s assumptions and assure that the cant errors? Is the study sufficiently com- Law states, “Everything costs more and assumptions have been explained. prehensive to permit informed decisions takes longer.” The group should discuss The report serves as a compilation about continuing with the project? If key with the consultant what considerations of project efforts. Potential members, information is lacking the group should will be made for these issues. financiers and others use this docu- decide to have the study revised. Changes after signing the contract can ment to help determine their support A well-crafted, but negative, feasibili- be costly or delay the study results, so all for the project. The report should ty study can prevent the group from parties should be clear what as to what is present conclusions from the study. It undergoing considerable trouble and expected prior to initiating the study. should be professional in its organiza- expense to learn the same information tion and its presentation. Details later in the project process. By the same Reviewing the study should be included such as a table of token, a feasibility study with a positive Selection of the consultant does not contents, page numbers and references economic return should be scrutinized end the group’s responsibilities. A qual- that make understanding the docu- and not accepted merely because it ified member or a small committee ment easier. makes the project seem possible. should be designated to work closely Although the contact members take Written records of the decision-mak- with the consultant. They work to on the lead in working with the consul- ing process should be made and kept in a assure that the feasibility study presents tant, the entire group should review the safe place. Group members need to be the ideas that the group identified for study carefully before deciding to aware of their legal responsibilities for study. They track the study at all stages accept it. due diligence. In the development of a and work with the consultant reviewing Advisors such as cooperative devel- project, an attorney should be kept and clarifying ideas during the study opment specialists or extension agents appraised and provide appropriate legal development process. can provide an objective review of the consul. Members with appropriate abilities study and offer insights on content or The next great idea for your farm or or backgrounds should be selected for assumptions. This outside review can your cooperative could be just around this task. It is critical that these “con- be especially useful, when consultants the corner. But before betting the farm tact members” commit sufficient time have prepared the report. on it, take time to hire a consultant to to work with the consultant. These The group refines the report before do a feasibility study to ensure you members represent the group’s inter- it is completed. Often a series of draft understand where that next great idea ests to the consultant. They are the key reports are presented as the study pro- can lead you. ■

24 July/August 2000 / Rural Cooperatives How well are dairy cooperatives performing?

By Carolyn Liebrand veys of agricultural cooperatives. Thir- ($3.12 per cwt), current liabilities were Agricultural Economist ty-nine percent of the nation’s 226 dairy 43 percent ($2.22 per cwt), and long- USDA Rural Development cooperatives supplied complete data. term liabilities were 18 percent ($0.90 However, these 88 cooperatives repre- per cwt). The remaining 40 percent of airy farmers and their sented about 96 percent of the total total assets consisted of member equity milk marketing coopera- assets held and 90 percent of the milk — both allocated ($1.70 per cwt) and tives join the list of com- handled by U.S. dairy cooperatives. unallocated ($0.34 per cwt). D Overall, dairy cooperatives used Fluid milk and finished product sales modities to be hard-hit by volatile market prices last year. But let’s $5.15 per hundredweight (cwt) of milk by dairy cooperatives were $19.85 per take a step back to review the financial of total assets to market their members’ cwt, which made up 88 percent of their performance of these individuals and milk in 1997. Of their total assets, 55 total income. The second largest seg- organizations at the end of the 1990s. percent ($2.84 per cwt) were current ment of income came from supply sales A picture of the financial perfor- assets; 26 percent ($1.32 per cwt) were ($1.77 per cwt), but these were just 8 mance of dairy cooperatives in the net property, plant and equipment; and percent of total income. The other 4 United States was developed from the the remaining 19 percent ($1 per cwt) percent of total income came from oth- results of a 1998 USDA survey. were investments in other cooperatives er sales, service receipts and other Detailed information on cooperatives’ and assets (table 1). income, and patronage refunds from 1997 finances were collected as a special On the other side of the ledger, total other cooperatives. part of one of USDA’s annual mail sur- liabilities were 60 percent of total assets Net margins before tax was $0.30 per

Table 1—Consolidated balance sheet per cwt, by type of dairy cooperative, 1997

Type of cooperative Bargaining Bargaining- Hard-product Branded- Diversified Item only balancing manufacturing cheese & fluid processing All $/cwt % $/cwt % $/cwt % $/cwt % $/cwt % $/cwt % Current assets .91 75.4 1.45 61.5 2.84 58.1 6.62 65.8 3.62 53.1 2.84 55.1 Net PP&E 1/ .13 11.1 .78 33.1 1.86 38.1 2.89 28.7 1.70 25.0 1.32 25.6 Investments in other co-ops .13 10.6 .09 3.9 .17 3.5 .38 3.8 .81 11.9 .56 10.8 Other assets .03 2.9 .04 1.5 .01 0.3 .16 1.6 .68 10.0 .44 8.5 Total assets 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0

Current liabilities .80 66.1 1.32 56.2 1.94 39.7 4.69 46.6 2.79 41.0 2.22 43.0 Long-term liabilities .04 3.1 .22 9.4 .73 14.9 .90 9.0 1.31 19.2 .90 17.5 Total liabilities .83 69.1 1.54 65.7 2.67 54.6 5.59 55.6 4.10 60.1 3.12 60.5

Allocated equity .30 24.8 .78 33.0 2.08 42.6 3.55 35.3 2.23 32.8 1.70 33.0 Unallocated equity .07 6.1 .03 1.3 .14 2.8 .92 9.1 .48 7.1 .34 6.5 Total equity .37 30.9 .81 34.3 2.22 45.4 4.47 44.4 2.72 39.9 2.03 39.5 Liabilities and equity 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0 Number of cooperatives 45 4 9 10 20 88 Milk handled 19,632 16,475 5,434 1,265 71,627 114,432 (million pounds)2/

Note: Totals may not add due to rounding. 1/ Property, plant and equipment. 2/ Total milk volume handled by cooperatives, net of inter-cooperative transfers.

Rural Cooperatives / July/August 2000 25 cwt. The ratio of net margins before tax ture about 25 percent of the milk ing cooperatives) and 66 percent (brand- to total income was 1.3 percent. Return handled into commodity products ed-cheese cooperatives) of total assets. on the assets used by cooperatives to in their own plants; Property, plant and equipment (PPE) market milk was 7.1 percent (measured • hard-product manufacturing — accounted for only 11 percent of bar- by dividing net margins before taxes and most member milk used in their gaining-only cooperatives’ total assets, interest expense by total assets). own, large-scale manufacturing reflecting their lack of facilities. In con- plants where they make undifferen- trast, PPE was 25 percent of total assets Performance by group tiated, commodity dairy products; for diversified and fluid processing and A portrait was also developed by • branded-cheese marketing and fluid 38 percent for hard-product manufac- type of dairy cooperative, based on the processing — typically process all turing cooperatives. variety of functions the cooperative their member milk in their own Diversified and fluid processing performed to ensure a market for plants, manufacturing and market- cooperatives had the highest level of member milk. There were differences ing specialty or branded cheese, or investment in other cooperatives and in the financial structure of coopera- bottled fluid milk, respectively; other assets, $1.49 per cwt, which was tives, depending upon their primary • diversified — manufacture or 22 percent of total assets. The others function. The following dairy coopera- process more than half the milk had low proportions of assets invested tive categories were identified: they handle into both differentiated in other cooperatives and other assets, • bargaining-only — focus exclu- and commodity products, as well as with the exception of bargaining-only sively on negotiating milk prices bargain for milk prices. cooperatives where investments in oth- and do not own plants; For this study, diversified and fluid er cooperatives represented 11 percent • bargaining and balancing — bar- processing cooperatives were grouped of their assets. gain for milk prices and manufac- together. Liabilities and equity Figure 1—Dairy cooperative sales and income Assets Total liabilities (current plus long- per cwt, by type, 1997 Bargaining-only coopera- term liabilities) ranged from $0.83 per 30 Milk and dairy product sales Supply sales tives used $1.20 to market 100 cwt for bargaining-only cooperatives to Other sales pounds of milk, while brand- $5.59 per cwt for branded-cheese mar- 25 Service receipts and other income Patronage refunds received ed-cheese cooperatives used keting cooperatives. However, liabilities

20 $10.06 per cwt. The other made up the largest proportion of total types of dairy cooperatives fell assets for bargaining-only cooperatives, 15 in-between this price spread. 69 percent, compared to the other Bargaining-only coopera- groups of cooperatives, which ranged 10 tives’ current assets of $0.91 from 55 percent (hard-product manufac- per cwt accounted for 75 per- turing cooperatives) to 66 percent (bar- 5 cent of their total assets. For gaining-balancing cooperatives). the other groups, current assets Diversified and fluid processing coop- 0 made up between 53 percent eratives had the most long-term liabili- B-O B & B HPM B-C D & FP All (diversified and fluid process- ties, reflecting a greater investment in plants and facilities and Table 2—Average financial profile of dairy cooperatives, by type, 1997 reliance on borrowed capital. Long-term lia- Million dollars per cooperative bilities for the remain- Bargaining Bargaining- Hard product Branded- Diversified Item only balancing manufacturing cheese & fluid processing All ing groups ranged Total assets 5.3 38.7 66.3 14.1 243.9 67.0 from 15 percent of Total liabilities 3.6 25.4 36.2 7.8 146.6 40.5 total assets for hard- Total equity 1.6 13.3 30.1 6.3 97.3 26.5 product manufacturing Milk and dairy cooperatives to 3 per- product sales 69.7 245.5 228.1 32.5 796.0 258.2 Net margins cent for bargaining- before tax .3 3.4 6.5 1.4 12.9 3.9 only cooperatives. Milk handled per cooperative Members of bar- (million pounds)1/ 436 1,648 1,359 141 3,581 1,300 gaining-only coopera- Number of tives held the lowest cooperatives 45 10 4 9 20 88 equity stake in their Note: Totals may not add due to rounding. cooperatives, $0.37 per 1/ Net of inter-cooperative transfers. cwt (30.9 percent of

26 July/August 2000 / Rural Cooperatives total assets). Member equity in hard- supply and other sales (12 percent of assets, milk and dairy product sales, net product manufacturing cooperatives was total income) along with bargaining- margins, and volume of milk handled. 45 percent of total assets, the largest only cooperatives where 11 percent of On average, diversified and fluid pro- share among the groups. However, total income was from the sale of sup- cessing cooperatives used almost 50 member equity per 100 pounds of milk plies and other items. The other three times the assets used by bargaining- was highest for branded-cheese coopera- types of cooperatives had minimal sales only cooperatives and four times the tives at 44 percent of total assets. of these types. assets used by the second largest type Most member equity was allocated of cooperative in terms of assets — (directly assigned to individual mem- Net margins hard-product manufacturing coopera- bers), regardless of the cooperative’s Net margins before tax per 100 tives. primary function. Bargaining-balanc- pounds of milk ranged from $0.06 for Diversified and fluid processing ing and hard-product manufacturing bargaining-only cooperatives to $0.98 cooperatives’ average milk and dairy cooperatives had the smallest portions for branded-cheese cooperatives. Hard- product sales were more than three of unallocated equity (not assigned to product manufacturing cooperatives times larger than for bargaining-bal- members) among the different types had the second largest net margins ancing cooperatives, the second largest (4 percent and 6 percent of total equi- before tax, followed by diversified and type in terms of average sales. Branded- ty, respectively). About one-fifth of fluid processing and bargaining-balanc- cheese cooperatives had the lowest the branded-cheese and bargaining- ing cooperatives. average milk and dairy product sales only cooperatives’ equity was unallo- Branded-cheese cooperatives realized per cooperative, reflecting their gener- cated. the highest profit margin (4.1 percent of ally smaller size. total sales). Hard-product manufactur- Diversified and fluid processing Sales and income ing cooperatives yielded the second cooperatives had the highest net mar- Milk and dairy product sales per highest net margins to sales (2.8 per- gins, on average, almost twice those of hundredweight ranged from $14.90 for cent). Diversified and fluid processing the next highest. Branded-cheese bargaining-balancing cooperatives to cooperatives’ net margin was 1.4 percent cooperatives had the second smallest $23.16 for branded-cheese coopera- of sales, and similarly, bargaining-bal- net margins. But, these were more tives. Ninety-nine percent of the hard- ancing cooperatives’ was 1.3 percent of than four times the average net mar- product manufacturing cooperatives’ total income. Bargaining-only coopera- gins of bargaining-only cooperatives income came from milk and dairy tives generated the lowest net margins and were generated with less than half product sales, $16.79 per cwt, the high- (0.3 percent of total income). the average milk and dairy product est proportion among the groups (fig. sales of bargaining-only cooperatives, 1). Milk and dairy product sales of Average an indication of the value-added $22.23 were 87 percent of total income The average (per cooperative) finan- nature of branded-cheese coopera- for diversified and fluid processing cial statement for each type highlights tives’ operations. cooperatives, the smallest proportion the magnitude of their differences To obtain a copy of the full report, among the different types. (table 2). Diversified and fluid process- visit our website at: However, diversified and fluid coop- ing cooperatives were the largest coop- www.rurdev.usda.gov/rbs/pub/research. eratives had the largest proportion of eratives, on average, in terms of total htm. ■

Continued from page 10 As rural advocates, PREA officials expect to sign a memo- attract new businesses to rural areas, plus help existing randum of understanding with the Pennsylvania environmen- businesses expand. In addition, PREA and its member-coop- tal department to establish the first-ever public-private part- eratives undertake projects that improve both rural infra- nership in septic system installation. Under the agreement, structure and the rural quality of life - cornerstones to eco- rural cooperatives not only financed research into the new nomic development and job creation. technology but will also have a hand in ensuring it is properly “We are perceived as rural advocates,” Biggica added. licensed, installed and managed. “We did not get into the business of electricity for the mon- “With our reputation, we got through the regulation sys- ey-making end of it. We are in the electricity business for tem three times faster than other groups coming forward quality of life issues. You can have the best economic with new technology,” said Biggica. “And now we have the development plans in the world, but if you don’t have sew- regulatory agency acknowledging that they trust us enough ers and roads and good schools — if you don’t have a good to ensure the technology is used correctly.” ■ infrastructure — your economic development plans don’t work.” – Pamela J. Karg, Field Editor

Rural Cooperatives / July/August 2000 27 NEWSLINE

Blue Diamond buys MacFarms Blue Diamond Growers, Sacramen- to, Calif., is acquiring MacFarms of Hawaii, one of the nation’s largest macadamia nut retailers, from Camp- bell Soup Co. for an undisclosed price. The deal will be financed entirely from the cash flow of MacFarms, which last year generated sales of $30 million, according to Walt Payne, president and chief executive officer of Blue Dia- mond. The purchase includes 3,900 acres of macadamias and a processing plant in South Kona, Hawaii. Payne added that Blue Diamond is no stranger to the macadamia markets. The cooperative has been marketing MacFarms’ nuts to businesses world- wide as an ingredient for such food products as cookies and candies for Blue Diamond Growers has acquired MacFarms of Hawaii, which markets $30 million worth nearly two decades. During that period, of macadamia nuts annually. Photo courtesy Blue Diamond Growers MacFarms has become the global leader in ingredient, or industrial sales. 1976 as a feed consultant, later becom- ing sure that rural America is not left Now, as owner of MacFarms, Blue Dia- ing a regional sales manager and finally behind as we advance into the informa- mond also will market MacFarms’ general manager of the GTA Feeds divi- tion age,” Agriculture Secretary Dan retail product, which today represents sion. In 1995, he was named Harvest Glickman said. “He comes prepared to about half the annual MacFarms sales. States president and CEO. Johnson help rural Americans meet their needs became president and general manager for safe drinking water, modern Cenex Harvest States names new CEO of Cenex Harvest States when the co-op telecommunications and an adequate North Dakota native John D. John- was formed in June 1998. Estenson, 61, supply of electrical power.” son is the new president and chief exec- joined Cenex as a credit manager in As the administrator of RUS, McLean utive officer of the producer-owned 1963 and rose through the ranks to will oversee financing for rural electric Cenex Harvest become president and CEO in 1987. He cooperatives, telecommunications and States Coop- was named CEO of the merged Cenex water programs, and administer the dis- eratives. He Harvest States in 1998. tance learning and telemedicine loan and succeeded grant program. The RUS loan portfolio Noel Esten- McLean new USDA/RUS leader contains over $42 billion in investments son, who Christopher A. McLean has been in rural utility infrastructure. McLean retired June 1. sworn in as administrator of the Rural will also serve as governor of the Rural Johnson, 51, Utilities Service (RUS) of USDA Rural Telephone Bank, a public/private lend- joined the for- Development. McLean succeeds Wally ing institution that promotes rural mer Harvest Beyer, who retired October 31, 1999. telecommunications infrastructure. John D. Johnson States Coop- “Chris McLean is dedicated to the Previously, McLean worked in the eratives in biggest task RUS faces today — mak- U.S. Senate for more than 15 years,

28 July/August 2000 / Rural Cooperatives serving as a legislative assistant and co-op took the initiative. largest citrus cooperative in Florida, legal counsel to Sen. James Exon of “Importing feed has been the high- with 12 member organizations repre- Nebraska, and later as legislative coun- est cost for dairy farmers,” Harker said. senting more than 1,000 growers and sel to Sen. Bob Kerrey, also of Nebras- “This machine will reduce their costs 60,000 acres of citrus groves. It ka. While at the Senate, he worked on and will also give them the opportunity processes more than 20 million boxes telecommunications, budget, trans- to expand their soybean production.” of oranges into frozen concentrated portation and trade issues. He was The department contributed a and not-from-concentrate juice. It instrumental in crafting the universal $10,000 grant and a $15,000 low- inter- markets under brand names such as service and rural provisions of the est loan toward the $30,000 purchase. Florida’s Natural, Grower’s Pride, Telecommunications Act of 1996. The group took out a loan from Finance Donald Duck, Bluebird, Adams and McLean received a B.S. and J.D. Authority of Maine, and four farmers in Texsun. from Creighton University, Omaha, the cooperative pitched in $5,000 apiece. Neb. He also holds a Master of Laws Apple cooperative to close degree from Georgetown University. Citrus World to buy plant Chief Tonasket, Okanogan County, Citrus World Inc., Lake Wales, Fla., Wash., closed its apple packing cooper- Internet-based meat exchange forms has purchased the Sun Pac Foods Inc. ative this summer, putting 80 employ- IBP, Cargill, Smithfield Foods, citrus processing plant in Bartow for an ees out of work. In the past decade, the Tyson Foods, Gold Kist and Farm- undisclosed price. “We need the Sun 72-year-old co-op went from packing land plan to invest $20 million to Pac facility to keep up with production about 90,000 bins of fruit to 27,000 create an Internet-based meat mar- of our premium juice products,” said bins last year. ket. The four investor-oriented firms Steve Caruso, chief executive officer of “It’s very, very sad, but basically the will each control 21.5 percent of the Citrus World, parent company of hole was too deep,” General Manager new company while the two coopera- Florida’s Natural Growers. “Our plans Steve Skylstad said. Most of the Chief tives will each control 7 percent. are to grow this business.” Tonasket employees were laid off in Buyers on the exchange will pay sub- The plant employs 80 people and mid-July after the remaining Red Deli- scription fees and there will be trans- processes about 5.5 million boxes of cious apples in storage from the 1999 action fees and advertising to cover oranges into juice annually. Citrus crop were sorted and packed. Most the cost of the operation. Each of the World plans to retain current employ- employees were seasonal, but about 12 six companies will still compete ees and expand the facility sometime were full time. Chief Tonasket once through this new channel as well as in the future. Sun Pac, based in packed apples for 80 farmers, but only through traditional channels. Brampton, Ontario, Canada, had been 15 remain. They will have to find new processing oranges under contract warehouses. Farmington co-op buys new with Citrus World since 1994. Chief Tonasket’s annual payroll is technology Florida’s Natural Growers is the $1.2 million, much of which is spent A small Farmington, Maine, cooper- ative has purchased a portable grain roaster that can process grains, corn and soybeans into a nutritious, tasty animal feed. Maine farmers hope it will translate into large savings so they no Kentucky grain farmers eye ethanol plant longer have to buy processed feeds Kentucky Gov. Paul Patton recently presented a USDA grant for $95,000 from other states or Canada. The machine was put through its to a group of western Kentucky grain producers to finance a study on paces when a truckload of locally ethanol production. Patton delivered the check from USDA Rural Develop- grown soybeans was poured through a ment to Ronald Berry, president of the Hopkinsville Grain Elevator. The chute into the gas-powered roaster and 2,200-member cooperative of grain producers from 17 western Kentucky heated to 280 degrees. The machine counties plans to use the money to match $30,000 in state money and pay for roasts and cools the product to air tem- a study assessing the feasibility of ethanol production. perature at a speed of 12 tons per hour. “While commodity prices remain at historically low levels and changes in This is the only grain roaster in the state, said John Harker, of the state tobacco production present additional downward pressures in our rural econ- Department of Agriculture. Farmers omy, it is essential that we look together at new and innovative ways to add looked into buying them, but the cost value to our traditional farm products,” Patton said. was prohibitive. This year, grants and loans became available, and the local

Rural Cooperatives / July/August 2000 29 in local businesses, Skylstad said. a state agency that manages the 1.1- ries could be especially big among Local orchards that were ripped out million-acre Pinelands national reserve. consumers because of their potential after the disastrous 1998 apple crop In 1998, New Jersey farmers pro- health benefits — they are among the were part of the problem. Also, farm- duced 36 million pounds of blueberries richest sources of certain antioxidants ers who raise high-quality fruit left the worth $28.4 million. The 79 cents a that some studies have linked to slow- co-op to get more money at packing- pound that farmers received that year er aging and reduced cancer risk. houses in Brewster and Wenatchee. was well below the $1 per pound they About 80 percent of the co-op’s ton- earned in 1997 and the all-time high of Honse to take over Farmland reins nage was in old varieties of Red Deli- $1.61 per pound in 1978. The Farmland Industries board of cious apples. Those Reds have Sandy and acidic soils of the Pine directors has named Robert W. Honse brought the lowest selling prices in Barrens, covering 22 percent of the to the position of president and chief recent years. state, are perfect for cultivating executive offi- No figures are available to show berries and have made New Jersey cer, effective how many of Okanogan County’s second in the nation in blueberry pro- Sept. 1. At the 29,000 acres of orchards have been duction, behind Michigan, and third same time, the removed since 1998, but some indus- in cranberry production. However, board appoint- try leaders believe up to 20 percent are cranberry prices plummeted from $55 ed Farmland’s no longer producing fruit. a barrel in 1997 to roughly $10 this current presi- year, primarily because of a produc- dent and N.J. to sell new blueberry products tion surge that outpaced static CEO, H.D. A new blueberry venture is seeking demand. “Harry” Cle- to create a market for a “JerseyBlues” In New Jersey, hundreds of acres of berg, as con- Robert W. Honse iced tea. Also hitting fruit stands and blueberry fields were converted into sultant to some stores this summer is a mashed cranberry bogs. From 1993 to 1998, Honse from blueberry spread called pomace. The cranberry farming jumped nearly 600 Sept. 1 to Dec. 31. acres, to 3,980; dur- Honse holds a bachelor’s degree in ing the same period, chemical engineering from the Universi- blueberry acreage ty of Virginia and joined Farmland in dropped from 8,100 1973 as project manager at its Lawrence, to 7,500. Kan., fertilizer plant. In 1986, he became Blueberry general manager at Farmland’s phos- growers then lob- phate manufacturing operations in cen- bied the state to tral Florida. Since returning to the co- impose a fee of six- op’s headquarters in Kansas City in 1989, tenths of a cent per Honse has held a variety of senior man- pound, in part for agement positions, most recently as research and devel- Farmland executive vice president and opment. Some chief operating officer. money went to the Rutgers project, Upstate Farms expands milk facility along with a Upstate Farms Cooperative is plan- $95,000 grant from ning a multimillion-dollar expansion of the USDA, $29,000 its milk production and distribution from the Pinelands facility in Cheektowaga, N.Y., a change Commission, that will trim 25 jobs at its Jamestown Blueberry tea may just be a hit with consumers — it’s the right $36,000 from the plant. Relocation of milk processing color for kids and it’s healthy, which adults appreciate. New Jersey Agricul- operations from Jamestown to the ture Experiment cooperative’s facility in Cheektowaga, products are being test-marketed in Station, and $5,000 from the state effective Sept. 8, will cut eight jobs New Jersey and Japan. They were Farm Bureau. from the Jamestown payroll. Another developed by researchers at Rutgers To market the products, growers 16 jobs will be cut in June 2001, University as a way to raise blueberry incorporated Blueberry Health Inc. according to David Crisp, Upstate prices, which have been depressed. Its goal is to make blueberry juice as Farms chief operating officer. Project sponsors include Rutgers, mainstream as orange, apple and cran- Upstate Farms is expanding its USDA and the Pinelands Commission, berry juices. Growers predict blueber- Cheektowaga plant by 27,000 square

30 July/August 2000 / Rural Cooperatives feet, adding more cooling and storage capacity. The cooperative recently pur- chased a vacant office building in Cheektowaga, which it expects to use for administrative personnel. Upstate Farms, owned by some 400 dairy farm- ers, produces more than 200 products LOL sells fluid plants, continues under Upstate Farms, Bison, Milk For Life and Aahhh! labels. The Cheek- cheese plant study towaga liquid products plant employs Illinois-based Dean Foods Co. is buying the Upper Midwest fluid milk 175 workers, and its Bison cultured operations of Land O’Lakes (LOL) Inc. The companies also are forming a products plant, in Buffalo, employs joint venture to market and license some products to expand their reach. another 120 in the production of Terms of the agreement, closed July 1, were not disclosed. The deal is subject yogurt and chip dip. to regulatory approval. States launch inquiry into big dairy LOL, Arden Hills, Minn., is a food and agricultural cooperative doing Massachusetts, Connecticut and business in all 50 states and more than 50 countries. Dean Foods, Franklin Vermont have launched an antitrust Park, Ill., is a processor and distributor of regionally branded and private- investigation into the growing market label dairy products. The purchase includes four fluid dairy plants — in clout of Suiza Food Corp., a Dallas- Woodbury, Thief River Falls and Bismarck, N.D., and in Sioux Falls, S.D., based dairy processor that one study as well as a new extended-shelf-life dairy plant at Richland Center, Wis. says now controls 70 percent of the The division generates annual sales of about $310 million and markets a region’s milk supply. The attorney gen- eral’s offices of the three states joined full line of fluid milk, yogurt, creams, sour cream and cottage cheese, 85 forces in the inquiry, officials said. percent of which is sold under the Land O’Lakes brand name. The two Suiza has rapidly emerged as the major businesses will each hold a 50 percent stake in the joint venture that will player in the New England milk market develop and market cream, half and half, sour cream and extended-shelf- through an aggressive strategy of buy- life products. ing smaller dairies. But regulators are “The joint venture allows us to extend the reach of our most innovative concerned that this expanding market share threatens to limit choices for fluid dairy products, and we will use the proceeds from the sale to build and both farmers and consumers. strengthen our core businesses on behalf of our members,” said Chris Over the past three years, Suiza has Policinski, Land O’Lakes executive vice president and chief operating officer bought Seward’s Dairy, Rutland, Vt.; of the dairy foods value-added group. Meanwhile, the Midwest would make Garelick Farms, Franklin, Mass.; an excellent home for what would be the largest cheese plant in the eastern Nature’s Best Dairy, Cranston, R.I.; New United States, according to a feasibility study by LOL and Alto Dairy Coop- England Dairies Inc., Hartford, Conn.; erative, Waupun, Wis. The two proposed building the plant earlier this year. and Grant’s Dairy, Bangor, Maine. It also has acquired the milk processing facili- Executives with the cooperatives said the facility would ultimately handle ties of Canton-based Cumberland Farms more than 1.7 billion pounds of milk annually, generate more than 100 jobs Inc. in Massachusetts and in New York, and include an annual payroll of about $6 million. and processing plants owned by West The feasibility study said Upper Midwest dairy producers have an advan- Lynn Creamery in Massachusetts. tage in resources, particularly water and crop production. They also have As Suiza has bought milk companies, edges in experience, expertise, long-standing production and processing it has closed four processing plants in New England, a consolidation that infrastructure, market presence and reputation. Officials with both coopera- effectively limits the market for farmers tives said they would study the possibility of building the plant in Wisconsin, and dairy co-ops, the states claim. The the nation’s leading cheese producer. The state lost market shares to newer company’s buying spree has already and larger plants in California and other western states in the 1990s. begun to affect some Vermont farmers. But Alto and LOL leaders have yet to decide to build the plant. Besides In February, the St. Albans Coopera- location, issues include environmental requirements, construction costs, tive Creamery learned that it was going financing options and economic support. No timetable for a final decision to lose its long-time co-packaging cus- tomer, Stop & Shop Supermarkets, to has been set. Suiza. ■

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